New ME Law Restricts Noncompete Agreements and Bans No-Poaching Agreements
By: Shiloh Theberge
Following a trend in several other states, including Massachusetts, New Hampshire, and Rhode Island, ME is clamping down on the use of noncompete and no-poaching agreements. Specifically, on June 28, 2019, ME Governor Janet Mills signed into law “An Act to Promote Keeping Workers in ME.” The law restricts employers use of noncompete agreements while providing clearer guidance on the enforceability of these agreements. Many employers hoped a recent lawsuit between two of ME’s largest employers would clarify the law relating to noncompete agreements, but that case settled.
The new law defines noncompete agreements as those that prohibit “an employee or prospective employee from working in the same or similar profession or in a specified geographic area for a defined period of time following termination of employment.”
First, employers can no longer enforce noncompete agreements with employees earning less than 400% of the federal poverty level ($49,960 for 2020). This provision reflects the belief that lower earning employees have less leverage to negotiate these agreements.
Second, where enforceable, noncompete agreements may restrict the employee no more than necessary to protect the employer’s trade secrets and other confidential information or goodwill (i.e. the company’s reputation and customer relationships). The law states that noncompete agreements will be presumed necessary if these interests cannot be protected through an alternative restrictive covenant such as a non-solicitation or a non-disclosure agreement. Given that employers often use non-disclosure and non-solicitation agreements to protect confidential information, this appears to mean that noncompete agreements will mainly be used for protecting goodwill moving forward.
Third, employers must follow strict advance notice rules. Before making an offer of employment, employers must notify an applicant that they will be asked to sign a noncompete agreement. The applicant must receive an actual copy of the agreement at least three business days before being asked to sign it, to allow the applicant time to review, discuss with counsel and, potentially, negotiate regarding the terms of the agreement prior to signing.
Finally, except for agreements with allopathic and osteopathic physicians, noncompete agreements cannot take effect until after one year after the employee is hired or six months after the employee signs the agreement, whichever is later. This means most employees will now have a one-year grace period to leave a new job before a noncompete agreement becomes binding, making non-disclosure and non-solicitation agreements critical.
In addition, ME also has adopted a new law targeting “anti-poaching agreements,” or agreements between two companies not to recruit or hire away each other’s employees. The new law categorically prohibits these types of agreements as a matter of state law. These types of agreements, are no longer enforceable.
Employers violating the low earner or advance notice provisions of the new noncompete law, or violating the no-poaching agreement provisions of the new law, can be fined $5,000 or more by the Department of Labor.
The new law takes effect on September 18, 2019. The noncompete provisions apply to agreements that either are signed or renewed on or after that date. Employers may not enforce or threaten to enforce no-poaching agreements on or after that date.
Next Steps for Employers:
Employers should carefully review any noncompete agreements or no-poaching agreements being used (including any types of agreements containing these provisions), as well as their practices in entering into these agreements, to ensure they are in accordance with the new law.