Restrictions on Noncompete Agreements Expands in New England

Restrictions on Noncompete Agreements Expands in New England

July 22, 2019

Last month, Maryland joined a growing list of states that restrict the use of noncompete agreements for low wage employees. This month, the list of states grew yet again with New Hampshire, Maine and Rhode Island joining the trend. Generally speaking, a noncompete agreement is a contract between an employer and employee that restricts the employee from working for competitor companies after their employment ends, subject to certain time and geographic limitations. The three New England states have now joined the trend by restricting the enforcement of these types of agreements for low wage employees.

New Hampshire: On July 11, the governor signed S.B. 197 into law, which renders void and unenforceable certain noncompete agreement signed between an employer and a "low wage employee." The law defines a low wage employee as one who earns an hourly rate equal to or less than 200 percent of the federal minimum wage, which currently translates to $14.50 or less per hour.

For low wage employees, the law prohibits three types of noncompete agreements: those that restrict an employee from working for another company (1) for a specified period of time, (2) within a specified geographic area, or (3) for a company that is similar to the current company. As with the Maryland law, there is no monetary penalty for employers who violate the law; the agreements are simply unenforceable.

The New Hampshire law goes into effect on September 8, 2019.

Maine: Maine’s new law is broader than New Hampshire’s, not only because it covers more low wage employees, but also because it restricts noncompetes for high wage earners and also prohibits non-poach agreements between companies.

H.P. 538, which the governor signed into law on June 28, 2019, restricts noncompete agreements for all employees earning 400 percent or less of the federal poverty level (which, in 2019, includes any individual making $49,960 or less, or $103,000 for a family of four). The threshold will vary by year based on the federal government’s poverty guidelines. Noncompete agreements for employees below this threshold are prohibited. Notably, employers who violate this law are subject to a fine of not less than $5,000, enforced by the state’s department of labor.

Similar to New Hampshire’s law, this law defines a noncompete agreement as a contract that prohibits an employee from working in the same or similar profession or in a specific geographic area for a certain period of time.

The law goes further than most of the new laws because it also restricts noncompetes for high wage employees. If an employer wants to enter into a noncompete with an employee earning above 400 percent the poverty level, the employer must give notice of this intent before giving the employee a job offer, and give the employee three business days to review the agreement and negotiate its terms. These noncompete agreements must also be "no broader than necessary" and must protect the company’s trade secrets, confidential information, or goodwill.

Non-poach agreements between two companies are also restricted by this law. The law prohibits two or more companies from entering into an agreement where they agree not to solicit or hire each other’s employees or former employees. Violations will also result in a fine of not less than $5,000.

The Maine law goes into effect on September 18, 2019.

Rhode Island: Rhode Island’s bill (H. 6019) passed the legislature on July 11, 2019. If signed by the governor, it would render void and unenforceable noncompete agreements for certain classes of largely low wage workers.

The law uses a more creative definition of covered employees with four (somewhat overlapping) categories of employees who are prohibited from having noncompete agreements. The categories include employees who are: (1) earning less than 250 percent of the federal poverty level ($31,225 for an individual), (2) 18 years or younger, (3) undergraduate or graduate student interns, or (4) classified as non-exempt under the federal Fair Labor Standards Act. Generally speaking, "non-exempt" employees under the FLSA are those who earn an hourly wage and are eligible for overtime, as opposed to earning a salary.

There is no monetary penalty for violations of the law. The law specifically states that the remainder of provisions in a contract containing a prohibited noncompete are otherwise still enforceable.

If signed, the law will take effect six months from that date.

Takeaways: The passage of these laws signals that states continue to move in the direction of prohibiting noncompete agreements for low wage workers. Employers should pay particular attention to rises in the minimum wage and federal poverty level, as those figures dictate which employees are covered by the prohibitions. This diligence is particularly important in Maine where violations can result in a monetary penalty.

As with the Maryland law, none of these laws relate to non-solicitation agreements, which prohibit employees from soliciting clients or employee’s from their former company after leaving (subject to the non-poaching statute between employers that will be unlawful under the new Maine law). Instead, the laws discussed in this blog solely relate to pure noncompete agreements, which restrict where an employee can go to work after the end of his or her employment.

Attorneys in Saul Ewing Arnstein & Lehr’s Labor and Employment Practice are available to assist employers with restrictive covenant agreements and other employment law issues. For more information or questions on this matter, please contact the author Michael Cianfichi, or any member of Saul Ewing Arnstein & Lehr’s Labor and Employment Practice.