Maine Enacts New Law Regarding Noncompetition Agreements

On June 28, 2019, Governor Mills signed L.D. 733, entitled “An Act to Promote Keeping Workers in Maine” (the “Act”) into law.  The Act will impose some significant new restrictions on noncompetition agreements in Maine.

Which types of agreements are subject to the Act?

As a threshold matter, the Act defines a noncompetition agreement as “a contract or contract provision that prohibits an employee or prospective employee from working in the same or a similar profession or in a specified geographic area for a certain period of time following termination of employment.”  Thus, other forms of restrictive covenants (such as nonsolicitation agreements, nondisclosure agreements, confidentiality agreements, and the like) are not subject to the Act.

For what purposes will the Act allow an employer and employee to enter into a noncompete?

The Act states, as a broad matter of policy, that noncompetition agreements are contrary to Maine’s public policy and are enforceable “only to the extent that they are reasonable and are no broader than necessary” to protect one or more “legitimate business interests” of the employer.  That pronouncement, in and of itself, does not represent much (if any) of a change in Maine law. The Act goes on to identify three—and seemingly only three—categories of “legitimate business interests” that can justify a noncompetition agreement.  Those legitimate business interests are: (1) protection of the employer’s trade secrets, as defined by the Maine Uniform Trade Secrets Act; (2) protection of the employer’s confidential information that does not qualify as a trade secret; and (3) protection of the employer’s goodwill.  The Act provides that a noncompetition may be presumed necessary if the employer’s legitimate business interests cannot be adequately protected by other forms of restrictive covenants, such as nonsolicitation agreements or confidentiality agreements.

What restrictions does the Act impose upon employers with respect to noncompetition agreements?

The Act’s biggest change to Maine law (at least in my view) is that it prohibits employers from entering into a noncompetition agreement with an employee if that employee earns “wages at or below 400%” of the federal poverty level for an individual.  Currently, that level is at $12,490.  In practice, this means that an employer may not enter into a noncompetition agreement with an employee unless that employee earns more than $49,960 in a year.

In addition, assuming that all of the other boxes have been checked (i.e., the noncompetition agreement is reasonably tailored to protect the employer’s legitimate business interests and the employee satisfies the minimum income requirement), the employer must also comply with certain notice requirements. This represents another significant change to the law in Maine. For applicants, prior to making an offer of employment, the employer must provide a statement indicating that the position will require the acceptance of a noncompetition agreement. Further, for both employees and prospective employees, the employer must provide a written copy of the noncompetition agreement at least three (3) business days before the employer requires the agreement to be signed.  The purpose behind the three (3) day requirement is to allow employees and prospective employees sufficient time to review the noncompetition agreement and to attempt to negotiate the terms of the agreement (or of the employment) with the employer, if they wish to do so.

Does the Act impact when the terms of a noncompetition agreement take effect?

This represents another substantial change to the law of noncompetition agreements in Maine. Previously, the terms of a noncompetition agreement could become effective immediately upon signing.  Under the Act, however, the terms of a noncompetition agreement cannot take effect until the later of one (1) year of the employee’s employment with the employer, or six (6) months from the date the agreement was signed.  There are only limited exceptions to this, which pertain only to allopathic and osteopathic physicians.

What about agreements between employers?

The Act further imposes restrictions on so-called “restrictive employment agreements.”  As defined by the Act, these are agreements between two or more employers (which specifically includes franchisor/franchisee agreements and contractor/subcontractor agreements) in which one employer is prohibited or restricted from hiring or soliciting the other’s employees or former employees.  The Act makes it unlawful to enter into a restrictive employment agreement, as well as to enforce or threaten to enforce such an agreement.

What are the penalties for violating the Act?

The Act imposes stiff penalties for employers who violate the restrictions discussed above.  A violation of the Act constitutes a civil violation, with a minimum fine of $5,000.  The Maine Department of Labor will be responsible for enforcing the Act.

When will the Act take effect, and will it apply retroactively?

The Act will take effect on September 19, 2019, and it will be codified at 26 M.R.S. §§ 599-A & 599-B.  It will apply to all noncompetition agreements that are entered into or renewed after that date. The Act will not apply to agreements that were entered into prior to the effective date.

Conclusion

Rudman Winchell’s experienced employment lawyers are happy to consult with employers on thorny questions regarding the Act’s restrictions on noncompetition agreements, and also to prepare such agreements for employers when warranted by the Act.

Joshua A. Randlett, Esq.
The Graham Building | 84 Harlow Street
P.O. Box 1401 | Bangor, Maine 04402
tel: 207.947.4501 | fax: 207.941.9715
direct dial: 207.992.4455

Disclaimer

These materials have been prepared by Rudman Winchell for educational purposes only.  They should not be considered legal advice. The transmission of this information to you is not intended to create a lawyer-client relationship. Readers should not act upon this information without seeking professional counsel.  You should not send any confidential or private information to Rudman Winchell until a formal attorney-client relationship has been established, in writing.