In recent weeks, Maine and New Hampshire each enacted a law prohibiting the use of noncompete agreements with lower wage earners. Shortly thereafter, on July 11, 2019, the Rhode Island legislature sent a similar bill to Governor Raimondo’s desk for signature.
With their new laws, Maine and New Hampshire join the states that are pushing back on noncompete agreements with lower wage earners. For example, Massachusetts restricts noncompete agreements with non-exempt employees, Illinois prohibits noncompete agreements with employees earning less than $13.00 per hour, and, as of January 1, 2020, noncompete agreements with Washington employees earning less than $100,000 are void and unenforceable. This trend shows little sign of subsiding. Similar bills were introduced this term in Connecticut (HB 6913 and HB 6914), Hawaii (HB 1059 HD1 and SB 328), Indiana (SB 348), Maryland (HB 38 and SB 328), Missouri (HB 331), New York (AB 2504), Pennsylvania (HB 563), and Virginia (HB 1792).
Maine: Restrictions on Noncompetes and Notice Obligations
Effective September 18, 2019, Maine employers will be prohibited from entering into or renewing noncompete agreements with employees earning wages at or below 400% of the federal poverty level.1 The Act to Promote Keeping Workers in Maine, signed into law by Governor Mills on June 20, 2019, further provides:
- employers must disclose that a noncompete agreement will be required prior to an offer of employment;
- employers must provide a copy of the noncompete agreement at least three business days before the employer requires the agreement to be signed; and
- the terms of the noncompete agreement will not take effect until after one year of employment or a period of six months from the date the agreement is signed, whichever is later.
Noncompete agreements are defined as any contract or contract provision that prohibits an employee or prospective employee from working in the same or a similar profession or in a specified geographic area for a certain period of time following termination of employment. Unlike the Massachusetts and Washington laws, the Maine law does not specifically carve out other restrictive covenant agreements, such as nonsolicit or nondisclosure agreements. However, the noncompete agreement definition suggests that nonsolicit and nondisclosure agreements may not be covered so long as they do not limit the employee’s ability to work postemployment. Furthermore, the law instructs that noncompete agreements are against public policy and are only enforceable to the extent they are reasonable and no broader than necessary to protect one or more of the following legitimate business interests: trade secrets, confidential information or goodwill.
The law applies to any agreements entered into or renewed on or after September 18, 2019. Importantly, the Maine law imposes a penalty on any employer that violates the notice requirements or the prohibition on noncompete agreements with certain workers. An employer violating either provision may receive a fine of not less than $5,000. The Maine Department of Labor is responsible for enforcement.
The Maine law also seeks to clamp down on “no poach” or “no hire” agreements by prohibiting any “restrictive employment agreement.”2 A restrictive employment agreement means an agreement between two or more employers, including through a franchise agreement or a contractor and subcontractor agreement, that prohibits or restricts one employer from soliciting or hiring another employer’s employees or former employees. The Maine Department of Labor is responsible for enforcement and violators may be fined not less than $5,000.
New Hampshire: Restrictions on Noncompete Agreements
On July 10, 2019, New Hampshire amended its Noncompete Agreements statute, instructing that any noncompete agreement between an employer and a low-wage employee shall be void and unenforceable.3 The amendment (SB 197) defines low-wage employees as those earning an hourly rate less than or equal to 200 percent of the federal minimum wage (i.e., employees currently earning $14.50 or less per hour or approximately $30,160 annually). The law applies to any noncompete agreement entered into on or after September 8, 2019.
Of note, New Hampshire already had a law in place requiring notice to any employee being asked to sign a noncompete for the first time.4 New Hampshire employers must provide a copy of a noncompete agreement to any potential employee prior to the employee’s acceptance of an offer of employment. A noncompete agreement that has not been disclosed to an employee as required by the law is unenforceable against the employee.
Rhode Island: Restriction on Noncompete Agreements Sent to the Governor
On July 11, 2019, the Rhode Island legislature sent Governor Raimondo the Rhode Island Noncompetition Agreement Act.5 The bill (S 698) would prohibit noncompetition agreements with employees who are: (1) classified as non-exempt under the federal Fair Labor Standards Act; (2) undergraduate or graduate students in an internship or short-term employment relationship; (3) 18 years of age or younger; or (4) low-wage earners (defined as earning less than 250% of the federal poverty level).
The Noncompetition Agreement Act would not apply to agreements with independent contractors. Further, the bill excludes from its coverage other types of agreements, including nonsolicits, nondisclosures, invention assignments, noncompetition agreements entered into with the sale of a business or substantially all of the operating assets of a business, noncompetition agreements outside the employment relationship, forfeiture agreements, agreements not to apply for re-employment after termination, and agreements made in relation to cessation of employment provided the employee has seven business days to rescind acceptance.
Finally, S 698 states that it does not prevent a court from imposing a noncompetition restriction on an employee who violates another agreement or a common law or statutory duty.
If signed by the governor, the statute will take effect six months after passage.
Conclusion
As legislatures and Attorneys General continue to examine the use of noncompete agreements in each state, we recommend employers consult with knowledgeable employment counsel on a regular basis to review their restrictive covenant agreements and ensure compliance with the current state of the law. Further, the focus on restricting the use of noncompete agreements with lower wage earners is a reminder to carefully consider a tiered approach to the use of restrictive covenant agreements—with noncompetition provisions typically reserved for those employees who are truly competitively dangerous.
Footnotes
