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Maine and New Hampshire Join National Trend, Enacting Laws Prohibiting Non-Competes for Lower-Wage Workers

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.

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About this Author

David Woolf, Drinker Biddle Law Firm, Philadelphia, Labor and Employment Litigation Attorney
Partner

David J. Woolf assists clients in a range of labor and employment-related matters, including employment litigation, non-competition and other restrictive covenant-related issues and union/management relations. David also actively works with our Corporate and Securities group on labor and employment deal diligence, providing guidance on the labor and employment aspects of actual and potential transactions.

David defends employers in employment-related litigation, including individual and class claims of discrimination, harassment...

(215) 988-2614
 Kelsey Wong Drinker Biddle labor and Employment, Wage and Hour Class Actions, California HR, Counseling and Compliance Training, Employment Litigation
Associate

Kelsey K. Wong represents employers in employment-related disputes including class actions, discrimination, wrongful termination, retaliation, harassment, and wage and hour matters. In addition, Kelsey counsels clients on a wide array of personnel-related matters involving compliance with federal and state employment laws. Kelsey devotes her pro bono practice to the representation of clients in connection with asylum and housing and tenant rights work.

310-203-4030