It should come as no surprise to readers of our blog that restrictive covenants are facing significant headwinds. The last decade or so has seen significant limitations on such agreements—mainly non-competes, but also other restrictive covenants such as customer and employee non-solicits and even non-disclosure agreements. These limitations—or proposed limitations—have come in a variety of forms; for example, many states have enacted so-called low-wage bans and choice of law and forum restrictions. They've also come from several corners: state legislatures (although not all have been successful), the FTC (which is expected to announce a final rule in April), the NLRB, and good ole' fashioned court decisions.
Less than 5 years ago, Maine joined the fun by limiting the use of non-competes substantially. Now, the legislature is looking to take it even farther. Yesterday, the House of Representatives of the state lovingly known as "Vacationland" voted to send the vast majority of non-competes on a permanent vacation, assuming colleagues in the Senate and the governor agree.
Specifically, where Maine's previous law limited the use of non-competes to those earning wages above 400% of the federal poverty level, H.P. 951 would amend the 2019 law to ban all non-competes in the employment context. The very limited exceptions to the ban are as follows:
(A) A seller of a business in this State may be bound by a noncompete agreement prohibiting the seller from opening a competing business in the same geographic area as the business that was sold;
(B) A shareholder in a limited liability company organized under the laws of this State may be bound by a noncompete agreement if the shareholder sells or disposes of all of the shareholder's shares; or
(C) A member of a partnership organized under the laws of this State may be bound by a noncompete agreement if the partnership is dissolved.
The bill would also invalidate any non-compete between an out-of-state employer and a Maine resident, and it would further invalidate an out-of-state choice of law "if it violates [Maine's] public policy" as set forth in the new bill. Finally, H.P. 951 dictates that the Department of Labor shall create a poster containing the non-compete laws, which employers must post in a "central workplace location," and must be printed "in a minimum font size, as determined by the Department of Labor, in accordance with provisions of law governing disability-related accommodations." Like the current law, the bill states that an employer who violates its provisions commits a civil violation, for which a minimum fine of $5,000 "may be adjudged," and further notes that the Department of Labor has the authority to impose such fines.
It remains to be seen if the Maine Senate will vote in favor of H.P. 951, and if Governor Mills will sign it into law. Some good news for employers with workers in Maine is that should the bill become law, it will only apply to agreements "entered into or renewed" (my emphasis) on or after its effective date. In the meantime, while we wait to hear more, such employers may want to ask their key Maine employees to sign appropriate restrictive covenants agreements, if they haven't already.
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