Maine Places Limits on Noncompete Agreements and Prohibits No-Hire/No-Poach Agreements Between Employers

By September 11, 2019 Labor and Employment

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Governor Mills signed into law “An Act to Promote Keeping Workers in Maine” (26 M.R.S. §§599-A and 599-B), set to become effective September 19, 2019, placing significant limitations on the use of employee noncompete agreements and prohibiting agreements among employers not to solicit or hire each other’s employees. In passing this legislation, Maine joins its New England neighbors, New Hampshire and Massachusetts, in restricting the use and enforceability of noncompete agreements and joins the national trend in striking down so-called “no poaching” agreements.

What the New Law Does

Noncompete Agreements

Statutory Restrictions on Use of Noncompete Agreements

The Act defines a noncompete agreement as “a 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.”

The Act codifies the common law principle that “noncompete agreements are contrary to public policy” and declares that such agreements are enforceable only to the extent that they are reasonable and are no broader than necessary to protect an employer’s legitimate business interests, which are defined to include only: (1) an employer’s trade secrets, (2) an employer’s confidential information, or (3) an employer’s goodwill.

The Act does not restrict the use of reasonable non-solicitation and confidentiality agreements.

Prohibition on Use of Noncompetes with Lower Wage Earners

The Act contains an express prohibition against requiring an employee earning wages at or below 400% of the federal poverty level to enter into a noncompete agreement. For 2020, this means that noncompete agreements are prohibited for workers earning less than $50,000 per year.

Disclosure to Prospective and Current Employees

If an employer will require a new employee to enter into a noncompete as a condition of accepting a job, the Act requires the employer to disclose to the prospective employee prior to making the offer of employment that a noncompete will be required.

If an employer will require a current or prospective employee to sign a noncompete agreement, it must notify the individual and provide a copy of the noncompete agreement at least three business days before the required sign and return date. The intent of this provision is to allow the individual to review the agreement and seek negotiation of the terms, if the individual so chooses.

Though the statute does not specify, notices should be given in writing.

Delayed Effective Date for Noncompete Agreements

The Act states that, except for certain physician agreements, the terms of the noncompete agreement cannot take effect until one year after the employee begins employment, or six months after the agreement is signed by the employee, whichever is later.

Penalties

The Act provides for a fine of at least $5,000 if an employer requires a lower-wage worker to sign a noncompete or if an employer fails to give the mandated notice and review period before requiring an employee or prospective employee to sign a noncompete. The Maine DOL is responsible for enforcement.

Effective Date

The Act will apply to all noncompete agreements entered into or renewed on or after September 19, 2019.

No-Poach/No-Hire Agreements

Prohibition on “Restrictive Employment Agreements”

The Act expressly prohibits “restrictive employment agreements,” which are defined as 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.

Under the Act, an employer may not enter into a restrictive employment agreement, enforce a restrictive employment agreement, or threaten to enforce a restrictive employment agreement.

Penalties

The Act provides for a fine of at least $5,000 if an employer enters into or tries to enforce a no-poach/no-hire agreement. The Maine DOL is responsible for enforcement.

What Should You Do?

Limit noncompete agreements to those employees who truly have access to and who are in a position to potentially trade upon your trade secrets, confidential information, and goodwill. Noncompete agreements cannot be used to restrict business competition generally. They must be tied to a “legitimate business interest” as defined in the statute.

Do not require a worker making less than $50,000 (to be adjusted upward in subsequent years) to sign a noncompete agreement.

If you require a noncompete agreement, be sure it is for a legitimate business interest as enumerated in the statute, be sure it is narrowly drafted, be sure to provide the required prior notice along with a copy of the proposed agreement, and be sure to provide the required time for review.

Do not enter into no-poach/no-hire agreements that restrict any employer’s ability to solicit or hire your current or former employees, and do not agree to such a restriction with another employer as to its employees or former employees. Review any current agreements to ensure they do not violate the new statute.

Review your standard offer letters and other onboarding documents in light of the new statute. Make sure any agreements entered into on or after September 19, 2019 comply with the statute.

Consider the use of non-solicitation agreements and confidentiality agreements to protect your legitimate business interests where noncompete agreements may not be enforceable or effective.

If you have questions on this new statute or wish to have new agreements or other documents drafted or reviewed, please reach out to Bill Sheils or Dawn Harmon in our employment practice group.