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Maine, Maryland, New Hampshire, Washington and Rhode Island have recently joined the growing ranks of states that prohibit non-competes with lower income workers, reflecting a growing public policy concern regarding fairness of imposing non-competes—and the accompanying threat of lawsuit—on vulnerable workers who likely do not have access to sensitive business information or deep customer relationships.  Although these states all are addressing the same issue, they are tackling it to varying degrees that may depend on the fact that each state has a uniquely situated workforce.

  • In Maine, on June 28, 2019, Governor Janet Mills signed into law “An Act To Promote Keeping Workers in Maine,” which prohibits employers from entering into a noncompete agreement with an employee whose wages are at or below 400% of the federal poverty level, or $48,560 per year.
  • In Maryland, on May 25, 2019, the state enacted a law effective October 1, 2019 that prevents employers from entering non-competes with employees earning less than $31,200 annually or $15/hour.
  • In New Hampshire, the existing non-compete statute was amended on July 10, 2019 (taking effect on September 8, 2019) to prohibit employers from requiring employees to sign agreements containing non-compete restrictions unless they earn in excess of 200% of the federal poverty level, which is equal to $14.50/hour (or $24,280 per year).
  • In Washington, on May 8, 2019, Governor Jay Inslee signed a new law, effective January 1, 2020, that, among other things, renders non-competes unenforceable against employees earning less than $100,000 in total annualized compensation (not just base salary) or independent contractors earning less than $250,000 a year. In addition, employees earning less than two times the state minimum wage generally may not be restricted from working an additional job (including for a competitor).
  • In Rhode Island, Governor Gina Raimondo signed into law the Rhode Island Non-Competition Agreement Act, effective January 2020, which prohibits agreements with those employees with average annual earnings of not more than 250 percent of the federal poverty level (for 2019, $31,225 for an individual and $64,375 for a family of four).

These are just the latest states that have overhauled their non-compete laws on this issue.  In Illinois, for example, the “Illinois Freedom to Work Act”—which applies to all noncompete agreements entered into on or after January 1, 2017—prohibits any non-governmental employer from executing a noncompete agreement with any employee who earns less than the greater of (1) the hourly minimum wage under federal, state, or local law, or (2) $13.00 per hour.  Massachusetts, too, joined the trend when its legislature enacted the “Massachusetts Noncompetition Agreement Act,” effective October 1, 2018, which includes a provision forbidding employers from entering into noncompete agreements with any employee classified as non-exempt under the Fair Labor Standards Act (FLSA). 

In addition, many other states have bills pending that would prohibit or limit non-competes with lower earning workers, including New Jersey, Hawaii, Indiana, Missouri, and Pennsylvania.  Similar bills in New York and Virginia died this legislative session, but reflect those states’ interest in addressing this issue. 

This growing trend has also gained momentum at the federal level.  On January 15, 2019, Senator Marco Rubio introduced the “Federal Freedom to Compete Act,” which, similar to the Massachusetts prohibition, prevents employers from entering into noncompete agreements with any employee except those classified as exempt executive, administrative, professional, or outside sales employees under the FLSA. Though broad, the Act—which, if enacted, amends the FLSA—does not prevent employers from executing agreements to protect trade secrets. 

If 2019 is any indication, more states—and perhaps the federal government—will likely take action to preclude non-competes for employees earning lower wages.  But, these laws also demonstrate that states are seeking targeted approaches to non-compete reform, addressing specific scenarios, rather than choosing to proceed toward an outright ban.

Nutter Partner David Rubin recently contributed an article to Massachusetts Lawyers Weekly that analyzed the Massachusetts Noncompetition Agreement Act. In the article, “Thorny Questions, Issues Emerging as Noncompete Act Takes Hold,” David addressed questions that have arisen since the legislation was enacted, including mutually agreed-upon consideration, employment relationships, non-exempt employees, termination cause, forfeiture for competition agreements, and separation agreements.

In the early morning hours of August 1, 2018, the Massachusetts House and Senate passed long-awaited non-compete legislation. Assuming that Governor Baker signs the bill into law, the legislation will become prospectively effective October 1, 2018. The Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”) is many years in the making, as Massachusetts legislators have made numerous, but unsuccessful, attempts to enact a law addressing non-competes over the past several years. 

In the early hours of this morning, the House and Senate advanced the non-compete legislation without any amendments. The legislation now moves to Governor Baker for approval. If enacted, the law would apply to all non-competes signed after October 1, 2018. In the coming days, we will report on what employers will now need to consider if Governor Baker signs the legislation. 

Over the past few years, we have reported on the Massachusetts Legislature’s unsuccessful attempts to alter non-compete law in the Commonwealth. In 2016, the Legislature was tantalizingly close to passing legislation before adjourning in July without reaching a compromise, and no fewer than six non-compete bills were introduced in 2017

On October 31, 2017, the Joint Committee on Workforce and Development once again held a hearing to discuss the possibility of legislative changes to Massachusetts non-competition and trade secrets laws. There were several bills up for discussion. One significant provision in most of the bills that is not receiving as much attention as it perhaps should is a requirement that any lawsuit to enforce a non-competition agreement as to a Massachusetts resident be brought in a Massachusetts court. Such a constraint would have a profound effect on the application of non-compete laws, and in particular, on out-of-state corporations. Where potential large-scale employer companies such as Amazon are considering expanding their presence in the Commonwealth’s flourishing market, such a drastic change in Massachusetts law could loom large. 

Massachusetts State House

As we previously reported, the Massachusetts House and Senate passed contrasting versions of non-compete reform bills in 2016 but were unable to come to an agreement by the end of the legislative session. Efforts began anew last month as Senator William Brownsberger and Representative Lori Ehrlich filed a new non-compete bill on January 20: An Act relative to the judicial enforcement of noncompetition agreements (Bill SD.1578). The bill builds on previous versions of legislation introduced in Massachusetts and would make significant changes to the landscape of both non-competes and trade secrets in the state.

The White House, Washington DC with two flags in front

This week, the Obama Administration continued its ongoing efforts to curb what it considers to be the “gross overuse” of non-compete agreements. In a “State Call to Action,” the White House encourages legislatures to adopt certain recommendations for non-compete reform. Tuesday’s announcement follows the Obama Administration’s May 2016 report, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses” discussed in an earlier blog post, which highlighted the variety of ways workers may be disadvantaged by non-competes.

Blue Pencil

In what may be a trend, several courts around the country this year have embraced strict interpretations of non-compete agreements, refusing to blue pencil or equitably reform overbroad or unreasonable clauses in non-compete agreements. Traditionally, courts have exercised the doctrine of equitable reformation to re-write provisions to render them reasonable, or at the very least, strike unreasonable provisions to save those that are reasonable.

Our firm’s Executive Comp Exchange blog recently added a post that is useful to employers who utilize confidentiality provisions in any of their employment documents. The blog post addresses the complications of confidentiality provisions of employee agreements and perceived constraints on the employee’s ability to report relevant information or conduct to certain government agencies. The National Labor Relations Board and now the SEC appear to be ramping up efforts to address what they believe are undue restraints by employers in this area.

In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.

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