This week, we discuss an example of a recent, and growing, trend where state governments are getting involved in how employers utilize non-compete agreements. Recently, Maine, New Hampshire, Rhode Island, and the state of Washington have passed regulations that restrict employers’ abilities use non-compete agreements.
Most recently, on June 28, 2019, the state of Maine enacted a law that significantly limits Maine employer’s use of non-competition agreements. The law, titled The Act to Promote Keeping Workers in Maine will become effective September 18, 2019. In summary, the new Act provides the following:
- Employers cannot require employees to agree to non-competition agreements unless the employee earns at least 400% of the federal poverty level ($48,560);
- Prior to sending an offer of employment, an employer must disclose in writing to a prospective employee that a non-compete restriction is required for employment. If there is a written agreement containing the non-compete, it must be provided to the prospective employee at least three days before the signature deadline.
- A non-competition agreement 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. Meaning that if an employee accepts a job and leaves within the first year of employment, they will not be bound by the non-competition restrictions.
Weeks before, on July 10, 2019, New Hampshire passed a similar law prohibiting non-competition restrictions for lower-wage employees. Their 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. The law will apply to any agreements that prohibit applicable workers from: (1) working for another employer for a specified period of time; (2) working in a specified geographical area; or (3) working for another employer that is similar to such low-wage employee’s work for the former employer who is a party to the agreement. The state of New Hampshire already required employers to provide a copy of any agreement containing a non-competition restriction to a prospective employee before the employee accepted an offer of employment.
Rhode Island’s new non-compete law, titled the Rhode Island Noncompetition Agreement Act, passed the legislature on July 11, 2019. If signed by the governor, it would render void and unenforceable non-compete agreements for certain classes of low wage workers. The law uses an expended definition to define the covered employees, by creating four categories of employees who are prohibited from having noncompete agreements. The categories include employees who are: (1) earning less than 250% of the federal poverty level ($31,225), (2) 18 years or younger, (3) undergraduate or graduate student interns, or (4) classified as non-exempt under the FLSA.
If signed into law, the new act will expressly prohibit non-competition agreements being enforced against any of the four classes of individuals above. The Act provides that a “non-competition agreement” is defined as an “agreement between an employer and an employee, or otherwise arising out of an existing or anticipated employment relationship, under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer, after the employment relationship has ended.”
Finally, the state of Washington’s new act was signed into law on May 8, 2019 and is scheduled to go into effect on January 1, 2020. The law includes a very broad definition of “noncompetition covenants,” by including “every written or oral covenant, agreement, or contract” by which any “employee or independent contractor” is prohibited or restrained from “engaging in a lawful profession, trade, or business of any kind.” Like the other states, Washington has limited the laws application to certain workers. In Washington, noncompetition clauses will be unenforceable against employees earning less than $100,000 in total annualized compensation (not just base salary) or independent contractors earning less than $250,000/year. In addition, if an employee starts working at a wage level that is below the compensation thresholds, then passes the limit at some later point, then the employer must specifically disclose that the covenant may be enforceable in the future.
With all the recent changes, it is imperative for multi-state employers to stay vigilant of the web of new laws that are being imposed. Even if your employment agreement maintains that the laws of the state of your corporate headquarters apply – it is essential that you are aware of the other applicable laws and can determine when/if they apply to your company or your employees.
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About Harrison Oldham
Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.
Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://