As we have previously discussed, there is an ongoing trend of states prohibiting the use of non-compete agreements in certain situations, including with lower-wage workers. Maine and New Hampshire are the most recent examples.
On June 28, 2019, Maine enacted a law that significantly limits an employer’s use of non-competition restrictions. The Act to Promote Keeping Workers in Maine, effective September 18, 2019, provides:
- Restrictions on use of non-competes for lower-wage workers. Employers cannot require an employee to agree to a non-compete restriction unless the employee earns in excess of 400% of the federal poverty level, or $48,560 per year.
- Disclosure requirements. Prior to issuing an offer of employment, an employer must disclose in writing to a prospective employee that a non-compete restriction is required. If the employer requires an employee to sign an agreement containing a non-compete, the employer must provide a copy of the agreement at least three business days before the signing deadline.
- Delayed effective date. A non-competition restriction will not take effect until after one year of employment or six months after the date the agreement containing the restriction is signed, whichever is later. Therefore, employees who accept a job and leave within their first year of employment are not bound by a non-competition restriction.
- Penalties. Employers that require lower-earning employees to agree to a non-competition restriction or fail to comply with the disclosure requirement can be fined $5,000 or more.
On July 10, 2019, New Hampshire passed a similar law prohibiting non-competition restrictions for lower-wage employees. Effective September 8, 2019, the law provides that employers cannot require an employee to sign an agreement containing a non-competition restriction unless the employee earns in excess of 200% of the federal poverty level, or $24,280 per year.
Note that New Hampshire law already required employers to provide a copy of any agreement containing a non-competition restriction prior to an employee’s acceptance of an offer of employment. New Hampshire law also required (and continues to require) notice to any employee asked to agree to a non-competition restriction for the first time. An employer cannot enforce a non-competition restriction that the employer failed to disclose to an employee pursuant to the law.
As courts and state legislatures continue to regulate the use of non-competition agreements, employers should review their hiring practices, particularly with regard to lower-wage workers and other non-exempt employees. Additionally, employers should remain mindful of timing and notice issues, which are increasingly important. Lastly, employers should remember that non-competition restrictions and other restrictive covenants are regulated almost exclusively at the state level and that laws vary dramatically from state to state. Thus, prior to using an agreement with a non-competition restriction, employers should ensure enforceability under the state law selected in the agreement and, if different, under the law of the state in which the employee will work.