The recently passed Act to Promote Keeping Workers in Maine is poised to dramatically alter the status of restrictive covenants in Maine. The Act accomplishes this by: (1) prohibiting employers from entering into no-poach agreements with one another; (2) barring employers from entering into noncompetes with lower wage employees; (3) limiting employers’ ability to enforce noncompetes; (4) mandating advanced disclosure of noncompete obligations; and (5) imposing a time delay between when an employee agrees to the terms of a noncompete and when the noncompete obligations actually go into effect. In addition to barring the enforcement of noncompliant noncompetes, the Act authorizes the Maine Department of Labor to impose monetary civil fines of “not less than $5,000” on employers who enter into non-complaint agreements. The Act apples to contracts entered into or renewed after September 18, 2019, so Maine employers should not waste time in revising their agreements to comply with the Act.
Prohibition of No-Poach Clauses in Agreements Between Employers
The Act prohibits employers from entering into “restrictive employment agreements” with one another. A “restrictive employment agreement” is an agreement between two or more employers “including through a franchise agreement or a subcontractor agreement” which “prohibits or restricts one employer from soliciting or hiring another employer’s employees or former employees.” Unlike federal antitrust law which prohibits “naked” no-poach agreements between employers, the Act does not provide an exception for no-poach agreements which are ancillary to a legitimate business collaboration. This portion of the Act is likely intended to combat fast food franchisors’ practice of including employee no-poach clauses in franchise agreements. However, it prohibits a wide range of less controversial practices such as including no-poach language in joint venture agreements, or staffing company service contracts.
The Act authorizes the Department of Labor to assess civil fines against employers who enter into, enforce, or threaten to enforce, “restrictive employment agreements.”
Ban on Noncompetes With Lower Wage Employees
The Act bars employers from entering into noncompete agreements with employees who earn less than 400% of the federal poverty line ($49,960 per year for 2019). Because the income level below which employees cannot enter noncompete agreements is tied to the federal poverty line which is subject to annual change, Maine employers should develop procedures to ensure ongoing compliance with this rule. The Act authorizes the Department of Labor to assess fines against employers who violate this provision by entering into noncompete agreements with lower income employees, regardless of whether the employer actually seeks to enforce the agreement.
General Limits on the Enforcement of Noncompetes
The Act provides that noncompete agreements will be enforceable only if they are reasonable and necessary to protect an employer’s: (a) trade secrets; (b) confidential information; or (c) goodwill. Employers can demonstrate that a noncompete agreement is necessary by showing that its legitimate business interests cannot be protected through an alternative restrictive covenant such as a nonsolicitation or nondisclosure agreement.
Disclosure Requirements for Noncompete Agreements
The Act requires employers to disclose that acceptance of a noncompete agreement will be required prior to making an offer of employment for a position that will require the acceptance of a noncompete agreement. Employers must also provide current or prospective employees a copy of any noncompete agreement at least three business days before the employee or prospective employee will be required to sign the agreement. Failure to provide either form of advanced notice is punishable by civil fine.
Delayed Effective Date of Noncompetes
The Act mandates a six month waiting period between when an employee enters into a noncompete agreement and when the noncompete obligations are binding on that employee. In addition, noncompete agreements are not binding on employees during their first year of employment with an employer.[1] These rules merely effect whether an agreement is enforceable; the Department of Labor is not authorized to levy fines against employers with noncompliant agreements.
Conclusion
The Act’s strict limits on noncompetes will force Maine employers to find more creative options to protect their proprietary information, goodwill, and other legitimate business interests. For example, employers may want to adapt to the Act’s prohibition on noncompete agreements during an employee’s first year of employment by adopting robust garden leave, nonsolicitation, or forfeiture on competition agreements not subject to the Act’s strict requirements.
Violations of the Act’s provisions governing no-poach agreements between employers, subjecting lower wage employees to noncompete agreements, and disclosure requirements are all punishable by fines of “not less than $5,000.” In light of these potentially significant monetary penalties, Maine employers should take steps to modify any noncompliant forms prior to the Act’s September 18, 2019 effective date.
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[1] The Act’s provisions governing the delayed effective date of noncompete agreements do not apply to allopathic or osteopathic physicians.