It’s hard these days to keep up with the the changing noncompete laws around the country. My most recent post covering recent updates, from not even quite six months ago, is already outdated.
Just by early June, three states (each covered in a separate post) had already enacted new noncompete legislation this year alone: Maryland (banning noncompetes for low-wage workers), Oregon (adding a requirement that the employer provide post-termination notice of a noncompete), and Washington (banning agreements for persons earning less than certain thresholds, as well as adding other new requirements).
Since then, four more states – Florida, Maine, New Hampshire, and Rhode Island – have also enacted legislation (effective June 26, 2019, September 18, September 8, and January 15, respectively). I have not had a chance to post about them at the time, so I am aggregating them here.
Taking them in turn . . .
What it says…
Invalid restrictive covenants.—A restrictive covenant entered into with a physician who is licensed under chapter 458 or chapter 459 and who practices a medical specialty in a county wherein one entity employs or contracts with, either directly or through related or affiliated entities, all physicians who practice such specialty in that county is not supported by a legitimate business interest. The Legislature finds that such covenants restrict patient access to physicians, increase costs, and are void and unenforceable under current law. Such restrictive covenants shall remain void and unenforceable for 3 years after the date on which a second entity that employs or contracts with, either directly or through related or affiliated entities, one or more physicians who practice such specialty begins offering such specialty services in that county.
What it means…
Immediately challenged in the United States District Court in Florida (21st Century Oncology, Inc. v. Moody), the new law essentially bans restrictive covenants with physicians if there is only one provider of the physician’s particular specialty in the county. As the court in 21st Century Oncology explained, “Section 542.336 declares that, when a particular entity employs or contracts with all physicians practicing a given specialty in a given county, any noncompete agreements between that entity and those physicians are void.”
If another provider of the specialty comes into the county, the ban goes away three years later.
There are certainly potential issues with the statute (for example, as 21st Century Oncology argued, “the three-year period of invalidity is ambiguous as a practical matter, and it is difficult for an employer to tell whether it is the sole employer of all physicians practicing a given specialty in a given county”), but the statute will have very narrow application.
What to do about it…
If your practice is the only one with a particular medical specialty, there is little you can do, absent perhaps financial incentives for a physician to restrict his or her post-affiliation conduct, a protocol for handling departing physicians, and, of course, strong patient records controls (which should be in place regardless).
For anyone interested in the law, the 21st Century Oncology, Inc. v. Moody decision (by Chief United States District Judge Mark Walker) is worth reading. It is both very well-reasoned and very funny – and starts off by revealing (with no spoiler alert) the entire story and ending to the 1954 film, Creature from the Black Lagoon, though “expressly disclaim[ing] any suggestion that [a state park near the state capitol] at all resembles a fetid swamp.” The court goes on…
Sixty-five years later, Plaintiff contends, another monster has emerged, this time in the heart of Tallahassee itself. The primordial pool in question is the Florida Capitol, and the role of the hadean hominid is played by section 542.336, Florida Statutes, which the Florida Legislature adopted in its 2019 Session.
What it says…
Effective September 18, 2019, and applicable to agreements entered into or renewed after that date, Maine has a new noncompete law (HP 538 – LD 733), entitled as “An Act To Promote Keeping Workers in Maine.” (As readers of this blog may have guessed, this title irks me insofar as it one again evinces a fundamental misconception about noncompetes (for a version not requiring a subscription, see here), but so be it – at least the legislature took a reasonably moderate approach to regulating noncompetes.)
Defining “noncompete” as “a contract or contract provision that prohibits an employee or prospective employee from working in the same or a similar profession or in a specified geographic area for a certain period of time following termination of employment,” the new law prohibits “requir[ing] or permit[ting]” employees “earning wages at or below 400% of the federal poverty level to enter into a noncompete . . . .” (“Federal poverty level” is defined to be the “confirm income official poverty line for an individual . . . .”)
Following existing Maine law, the new law provides that “[n]oncompete agreements are contrary to public policy and are enforceable only to the extent that they are reasonable and are no broader than necessary to protect one or more of the following legitimate business interests of the employer: A. The employer’s trade secrets . . . ; B. The employer’s confidential information that does not qualify as a trade secret; or C. The employer’s goodwill.” These concepts are fairly common. However, in a nod to businesses, the new statute (like the new Massachusetts law) adds that “A noncompete agreement may be presumed necessary if the legitimate business interest cannot be adequately protected through an alternative restrictive covenant, including but not limited to a nonsolicitation agreement or a nondisclosure or confidentiality agreement.”
The new law also adds that, for any job requiring a noncompete, the employer must – prior to an offer of employment – “disclose . . . that a noncompete agreement will be required.”
The employer must also give a copy of the agreement to the employee at least three business days in advance of the deadline to sign it “to allow time for employee or prospective employee to review the agreement and negotiate” the agreement.
Further, the agreement cannot have effective date “until after one year of the employee’s employment with the or a period of 6 months from the date the agreement was signed, whichever is later.” The only exception to this requirement is for certain doctors (specifically, an “allopathic physician or an osteopathic physician licensed under Title 32, chapter 48 or chapter 36, respectively . . .”).
Violations are subject to civil fines in an amount not less than $5,000 to be enforced by the Maine Department of Labor. Violations include “requir[ing] or permit[ting] an employee earning wages at or below 400% of the federal poverty level to enter into a noncompete agreement with the employer” and failing to given the required disclosure or notice.
Separately, the new law also bans no-raid agreements (called “restrictive employment agreements” under the statute) between two or more employers (including among franchisors and contractors). It also provides for similar civil fines as those for noncompetes that violate the law.
What it means…
The general restrictions and requirements are relatively clear on their face. In short, as to noncompetes, the thrust of the statute is a ban noncompetes for employees earning less than or equal to $49,960 (i.e., 400% of the current federal individual poverty level – but, note that the poverty line changes over time), and then to impose procedural requirements of their use (i.e., advance notice). Most significantly, there is a minimum period of employment before the agreement can be effective – essentially one year for new employees and employees who have been at the company for less than six months, and six months for employees who have been at the company for at least six months.
That said, the new law is not without ambiguity.
For example, the definition of noncompetes, arguably, would apply only to one of two groups of employees:
- Employees who are prohibited – entirely – from engaging in a profession (presumably not limited to technical “professions” like doctors, lawyers, etc.). Assuming an expansive definition of the word “profession,” the new law could be read to be inapplicable to salespersons who are permitted to work as salespersons for any company other than a competitor of the former.
- Employees who are prohibited within “in a specified geographic area for a certain period of time following termination of employment.” Thus, in theory, the new law could be read as inapplicable to restrictions that are geographically unbounded or unlimited in time restrictions. (Of course, restrictions so unbridled would be overly broad under existing Maine law anyway.)
These interpretations are highly unlikely.
A more realistic issue is the effect of the income threshold. The law is clear that someone earning below that threshold may not “enter” the agreement. However, what if the employee earned more than the threshold at the time he or she entered the agreement, but earned less the next year? While that agreement seems, on its face, to be outside the reach of the statute, it’s unclear what a court would do.
Nor is it clear how the threshold applies if the employee is paid purely on the basis of commissions.
What to do about it…
For any agreement that predates September 18 (arguably September 19), 2019, no changes are required. For agreements entered or renewed (and presumably modified) after that date, notice (and a copy of the agreement) must be given in accordance with the new law, and no noncompete should be given to an employee falling under the wage threshold.
Similarly, in short, B2B no-raid agreements should be avoided. That was, of course, the prevailing wisdom in light of the FTC/DOJ Antitrust Guidance for Human Resource Professionals.
What it says…
Effective September 8, 2019, New Hampshire has a new noncompete law (SB197), entitled as “An Act relative to noncompete agreements for low-wage employees.”
The statute prohibits employers from requiring “low-wage employees” (see below for how they are defined) to enter into noncompetes (also defined) and renders any noncompetes with low-wage employees void and unenforceable.
“Noncompete agreements” are defined as “agreement[s] between an employer and a low-wage employee that restrict such low-wage employee from performing: (1) Work for another employer for a specified period of time; (2) Work in a specified geographical area; or (3) Work for another employer that is similar to such low-wage employee’s work for the employer who is a party to the agreement.”
“Low-wage employees” are defined as employees who earn an hourly rate less than or equal to 200 percent of (1) the federal minimum wage or (2) the tipped minimum wage pursuant under state law (RSA 279:21), whichever applies.
What it means…
In short, the statute bans noncompetes for employees earning less than or equal to $14.50 per hour (for non-tip-based employees). Note that minimum wages change from time to time. Of course, even this is not as clear as it may seem. As a good friend who also does a lot of work in trade secrets and restrictive covenants law (Erik Winton) observed, the statute is arguably unclear on how it applies to an employee with a low base, but high commissions.
Another open issue under the statute is whether noncompetes with low-wage employees that are executed prior to September 8, 2019 (the effective date of the statute) will be void and unenforceable.
What to do about it…
For any noncompete with a low-wage employee that predates September 8, 2019, anticipate that it will be unenforceable.
Accordingly, for low-wage employees with those agreements (as well as for low-wage employees with agreements entered after September 8, 2019), consider whether other restrictions (nonsolicitation, nondisclosure, and no-raid provisions) are sufficient to protect the company’s legitimate business interests. If they are not, consider whether the employee’s pay can and should be increased. And, of course, proper protocols for the protection of information and customer/client relationships – including for when an employee leaves – should always be in place.
What it says…
Effective January 15, 2020, Rhode Island created its first statutory noncompete law (the “Rhode Island Noncompetition Act”), drawing on a number of the noncontroversial (or, at least, less controversial) aspects (and language) of the new Massachusetts noncompete law as a foundation.
Although described in the bill as “a comprehensive statutory scheme to address all aspects of noncompetition agreements,” the new law is more of a definitional scheme. In particular, it defines “noncompetition agreements” and a few other key terms, and has only a few operational provisions, though omitting any overall governing standards. Specifically, the two critical terms defined in the statute are “low-wage employee” and “noncompetition agreement,” as follows:
“‘Low-wage employee’” means an employee whose average annual earnings, as defined in § 28-58-2(2), are not more than two hundred fifty percent (250%) of the federal poverty level for individuals as established by the United States Department of Health and Human Services federal poverty guidelines.” (Note that the term “employee” does not include independent contractors.)
“‘Noncompetition agreement’” means 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. Noncompetition agreements include forfeiture for competition agreements, but do not include: (i) Covenants not to solicit or hire employees of the employer; (ii) Covenants not to solicit or transact business with customers, clients, or vendors of the employer; (iii) Noncompetition agreements made in connection with the sale of a business entity or all or substantially all of the operating assets of a business entity or partnership, or otherwise disposing of the ownership interest of a business entity or partnership, or division or subsidiary of any of the foregoing, when the party restricted by the noncompetition agreement is a significant owner of, or member or partner in, the business entity who will receive significant consideration or benefit from the sale or disposal; (iv) Noncompetition agreements originating outside of an employment relationship; (v) Forfeiture agreements; (vi) Nondisclosure or confidentiality agreements; (vii) Invention assignment agreements; (viii) Noncompetition agreements made in connection with the cessation of or separation from employment if the employee is expressly granted seven (7) business days to rescind acceptance; or (ix) Agreements by which an employee agrees to not reapply for employment to the same employer after termination of the employee.”
Those familiar with the Massachusetts statute might notice that the language is the same, with the exception of the omission of “garden leave clauses,” which have created tremendous confusion and uncertainty in Massachusetts. (More on that in a later post.)
As for the operational provisions, the new law bans noncompetes against certain groups of employees as follows:
“(a) A noncompetition agreement shall not be enforceable against the following types of workers:
(1) An employee who is classified as nonexempt under the Fair Labor Standards Act, 29 U.S.C. 201-219;
(2) Undergraduate or graduate students that participate in an internship or otherwise enter a short-term employment relationship with an employer, whether paid or unpaid, while enrolled at an educational institution;
(3) Employees age eighteen (18) or younger; or
(4) A low-wage employee.”
Like the Massachusetts statute, the new Rhode Island statute also explicitly permits colloquially-called “springing noncompetes” (or, as John Marsh has called them, “time out injunctions”):
“nor does it [the statute] preclude the imposition of a noncompetition restriction by a court, whether through preliminary or permanent injunctive relief or otherwise, as a remedy for a breach of another agreement or of a statutory or common law duty.”
What it means…
The general restrictions and requirements are relatively clear on their face. In short, as to noncompetes, the thrust of the statute is to ban noncompetes for employees earning less than or equal to $31,225. (Note that the numbers will increase as the poverty line increases over time.) To the extent not covered by that ban, the statute also bans the use of noncompetes with FLSA-nonexempt employees, students, and persons under 18.
Once it becomes effective (i.e., January 1, 2020), the ban will apply retroactively, i.e., to all agreements, whether they were in place prior to that date or after. That is because, rather than stating that noncompetes are “banned,” the statute says that they “shall not be enforceable . . . .”
What to do about it…
Like in New Hampshire, for any noncompete with a low-wage employee (and other employees falling in exempted categories), employers should anticipate that it will be unenforceable.
Accordingly, for persons who cannot be bound by a noncompete, consider whether other restrictions (nonsolicitation, nondisclosure, and no-raid provisions) are sufficient to protect the company’s legitimate business interests. If those restrictions are insufficient, consider whether the employee’s pay can and should be increased. And, of course, proper protocols for the protection of information and customer/client relationships – including for when an employee leaves – should always be in place.
Additional things to know…
Next up: Washington, D.C., which has a new bill called “Ban on Noncompete Agreements Act of 2019.” True to its name (sort of), the bill (primarily) would ban noncompetes for persons earning three times the DC minimum wage. See Bill Banning Non-Competes Targets D.C.’s Entry-Level, Moderate-Income Workers; Press Release: Silverman Bill Bans Non-Compete Agreements for Entry Level and Moderate-Income District Workers.
And, if all of this leaves you clamoring for more, check out The Weirdest Laws in All 50 States.
Well, that’s the update … for now anyway.
Thanks… once again to Erika Hahn for helping me locate, interpret, and summarize the new laws.