[Editor’s Note: Adam Nyhan is a business attorney at Opticliff Law in Portland. This article was first published on Opticliff’s blog.]

Maine in June 2019 significantly changed its laws governing noncompete agreements. The new rules will make it harder for employers to enforce these contracts, with a goal of allowing talent to switch jobs more freely and more often.

In a noncompete, an employee agrees not to work for her employer’s competitors for a defined period of time after her job ends. Not all employers use them, but they are common for companies nationwide, large and small. Employers often use use noncompetes together with confidentiality agreements (NDAs), as both of them seek to reduce the risk of the employers’ secrets falling into competitors’ hands.

MAINE NONCOMPETE LAW UNTIL NOW

Noncompete law in Maine, as in other states, has always consisted more of vague standards than easily applicable rules. In general, noncompetes must be “reasonable,” meaning no more restrictive to the employee than is necessary to protect the employer’s legitimate business interests. What that means in practice depends entirely on specifics: what does the employee’s job entail? Is she a salesperson, a software engineer or a warehouse worker? How long does the noncompete term last? In what geographic radius does it apply? Will the noncompete effectively prevent her from making a living in her chosen profession?

These answers only become clear when courts say what they mean in specific disputes. And in Maine, few of these lawsuits have resulted in court decisions. As a result, employees of Maine companies have always had a hard time knowing whether their noncompete agreements are really enforceable. That uncertainty still has a chilling effect on employees as they consider leaving their current job for a competitor. A recent lawsuit between two of Maine’s largest employers was poised to clarify the law, but that case settled before the judge could rule.

MAINE’S NEW NONCOMPETE LAW

The new law provides much clearer noncompete rules than have existed in the past. [Editor’s Note: The bill, LD 733: An Act To Promote Keeping Workers in Maine, was sponsored by Sens. Catherine Breen and Bill Diamond. Gov. Janet Mills signed it into law on Jun 28, 2019. It will become law on Sept. 18, 2019.]

First, employers may not use noncompetes at all with employees earning less than 400% of the federal poverty level [Editor’s Note: Based on the federal government’s 2019 Poverty Guidelines, that equates to approximately $50,000 for a one-person household, $67,640 for a two-person household, $85,320 for a three-person household, and $103,000 for a four-person household. Have a bigger household? Check out the guidelines for larger households.]. This reflects a policy belief that lower-earning workers have less leverage to negotiate these agreements.

Second, for employees earning more than the threshold, noncompetes are frowned upon but valid as long as they restrict the employee no more than necessary to protect the employer’s trade secrets, other confidential information or goodwill (the company’s reputation and customer relationships). This begs the question, though, whether noncompetes now can really do anything more than protect goodwill, because employers can already use NDAs to protect confidential material. It remains to be seen how creatively companies will handle these agreements in the months ahead.

Third, employers must follow strict new advance-notice rules. Before making an offer of employment, they must notify the candidate that they will be asked to sign a noncompete. The candidate must receive an actual copy of that document at least three days before they are asked to sign it, allowing them time to review, discuss with their own attorney and possibly request negotiation of it before signing.

Fourth, the law has teeth: employers that ask low-earning employees to sign noncompetes or fail the notice requirement can be fined $5,000 or more, with the Department of Labor enforcing these rules.

Fifth, noncompetes cannot take effect until after one year after the employee is hired or six months after the employee signs the agreement, whichever is later. Effectively, most employees will have a one-year grace period to leave a new job before the noncompete binds them.

Finally, the new law takes effect on September 18, 2019, and applies to noncompetes that either are signed or renewed on or after that date.

MAINE’S NEW BAN ON ANTI-POACHING AGREEMENTS

Maine also has adopted a new law targeting “anti-poaching agreements,” or agreements between two companies not to recruit or hire away each other’s employees. These agreements have always raised serious concerns — any time competitors agree not to compete with each other, antitrust alarm bills should ring — and the U.S. Department of Justice has publicly waged war on many of them. But now Maine makes them illegal as a matter of state law too. Violations of these agreements, too, can warrant fines of $5,000 or more. Note that an agreement does not need to be in writing to be illegal; some of the largest fines in antitrust history involved oral or handshake agreements between competing CEOs.

KEY TAKEAWAYS

Here are our takeaways on these new laws: some Maine employers will simply stop asking employees to sign noncompetes and simply rely on robust NDAs. For these companies, the hassle and legal cost of preparing yet another contract to address a fairly small issue — which a good NDA can already largely cover — is not worth it.

Other companies will continue using noncompetes, but will need to redesign their hiring practices to give the required advance notice; a safe practice would be to say right in a job listing that the applicant will need to sign a noncompete, and then present the document to them early in the recruiting process before an offer is even made. Companies should also carefully review their existing standard employment agreements and employee handbooks with counsel now — before the law takes effect in September — to ensure their noncompetes comply with the new law.

Those Maine companies that offer Employee Stock Option Plans (ESOPS) or similar equity incentive plans to their employees or consultants likely can use noncompetes in the context of those arrangements. In this case, if the person is asked to sign a noncompete not in their capacity as an employee but as a shareholder in the company, the new Maine law does not apply.

Maine is only the latest state to restrict noncompetes. Some states in recent years have outlawed them across the board. Others have added significant restrictions on enforceability as well as advance-notice periods. We can expect the trend to continue in the near term.