Multiple States Join Emerging National Trend Banning Noncompete Agreements with Low-Wage Workers

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.

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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