On June 28, 2019, Governor Mills signed LD 733, An Act To Promote Keeping Workers in Maine, into law. The Act places limits on non-compete agreements and bans restrictive employment agreements.
The Act defines a non-compete agreement as one restricting the employee “from working in the same or similar profession or in a specified geographic area for a certain period of time following termination of employment.”
Under LD 733 “an employer may not require or permit an employee earning wages at or below 400% of the federal poverty level” to enter into a non-compete agreement.
Employees Earning Above the Threshold
For employees who earn more than 400% of the federal poverty level, non-competes are disfavored and only enforceable if necessary to protect the legitimate business interest of the employer, which includes trade secrets, non-trade secret confidential information and goodwill. A non-compete agreement may be deemed necessary only if the legitimate business interest cannot be protected through others means, including non-solicitation agreements and NDAs.
Where an offer of employment is condition upon execution of a non-compete agreement, a prospective employee must be given at least three days’ notice before being required to sign the agreement. This notice period is designed to allow for time to review the agreement and negotiate the terms of their employment.
Aside from a limited exception for certain types of physicians, a non-compete agreement will not take effect until one year from the date of employment or six months from the date of execution, whichever is later.
If an employer is found to have violated either the low-wage employee or notice provisions, they will be deemed to have committed a “civil violation for which a fine of not less than $5,000 may be adjudged.”
Restrictive Employment Agreements
Restrictive employment agreements are banned under LD 733. The Act defines a restrictive employment agreement as an agreement between two or more employers, including franchise and contractor/subcontractor agreements, which prohibit or restrict one employer from hiring or soliciting another’s employees or former employees. An employer is prohibited from entering into, enforcing or threatening to enforce a restrictive employment agreement. These types of agreements are commonly referred to as “no-poach agreements.”
If an employer is found to have violated the restrictive employment agreement provision by entering into, enforcing or threatening to enforce a restrictive employment agreement, they will be deemed to have committed a “civil violation for which a fine of not less than $5,000 may be adjudged.”
Maine joins its neighbors, New Hampshire and Massachusetts, along with Maryland, Illinois and Washington, all of which have passed legislation limiting restraints placed on lower wage employees. The definition of low wage varies greatly by state, in New Hampshire non-compete agreements are banned for employees earning an hourly wage of $14.50 or less. While in Washington, non-competes are only enforceable for employees earning over $100,000 per year. In 2015, a similar piece of federal legislation failed to garner the necessary support.
We will continue to closely monitor proposed non-compete legislation across the nation and report back with any updates.