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.
This latest installment of The Restricting Covenant series highlights the significant changes coming to Washington State regarding non-compete agreements (it’s a game changer), as well as similar legislation (passed and proposed) in other states including Massachusetts and New Jersey. Employers surely will feel the ripple effect of Washington’s new sweeping law on non-competes. Is this a sign of things to come for significant non-compete reform in other states coast to coast (“Winter is Coming,” anyone?).
Continue reading “Part 23 of “The Restricting Covenant” Series: Legislative Limitations”
Not too many topics related to restrictive covenants gain buzzworthy status. However, when state and federal governmental agencies and class action attorneys start filing lawsuits nationwide, and Fortune 500 companies in various industries start settling and agreeing to change the way they do business, well, that usually generates some buzz and attention. It seems that not a week goes by lately without a new headline discussing the latest hot-bottom issue in the world of restrictive covenants – “no-poaching” agreements.
Continue reading “Part 22 of “The Restricting Covenant” Series: No-Poaching Agreements”
In this article I discuss a lesser known judicially created doctrine that is equal parts confusing in application and sweeping in scope for litigants involved in restrictive covenant disputes – the Economic Loss Doctrine (ELD).
Continue reading “Part 21 of “The Restricting Covenant” Series: The Economic Loss Doctrine and Non-Competes”
You’re probably reading the title of this article and saying, “He’s gone bonkers! What does ‘radius’ and Edgar Allan Poe’s poem ‘The Raven’ have to do with restrictive covenants?”
This article is for all you inner mathematicians and geometry aficionados. More to the point, it is for those who draft, interpret and litigate non-compete agreements that contain geographic restrictions. When I heard that Google Earth had launched a new tool to measure distance and area, it sparked memories yonder of an esoteric, but very important, issue that is litigated occasionally in non-compete cases, and now the subject of the twentieth article of this Series.
Continue reading “Part 20 of “The Restricting Covenant” Series: Radius, The Raven, and Restrictive Covenants”
It is becoming commonplace for employers to use web-based clickwrap agreements with their employees either as part of onboarding (e.g., employment agreements) or during the course of employment (e.g., stock award agreements). These clickwrap agreements can include important post-employment restrictive covenants. Are these covenants enforceable?
Continue reading “Part 19 of “The Restricting Covenant” Series: Clickwrap Covenants Not to Compete”