Roundup of Seven States That Have Passed Statutes in 2019 Limiting Enforceability of Non-Compete Agreements – And a Note on the Proposed Federal “Workforce Mobility Act”

by Amanda Hartman '20

Over the course of 2019, states have enacted legislation limiting the enforceability of non-compete agreements in order to keep employers in check from overreaching and to avoid a chilling effect on employee movement. Notably, states such as Washington have focused on discouraging employers from bringing lawsuits merely to control the movement and activity of employees and not for the purposes of protecting legitimate trade secrets and business interests. Read on for a roundup of 2019 state legislative activity in the realm of non-competition law.

Maine (Act to Promote Keeping Workers in Maine [the “Act”]): The Act prohibits no-poach clauses in agreements between employers and renders unenforceable non-compete agreements with low-wage employees; the Act authorizes the Department of Labor to assess civil fines of “not less than $5,000” against employers who violate either of these provisions. The Act provides that non-compete agreements are enforceable only if they are reasonable and necessary to protect an employer’s trade secrets, confidential information, or goodwill, and that an employer must demonstrate that these interests cannot be protected through the use of a non-solicitation or non-disclosure agreement. Further, employers must make certain disclosures to interviewees that acceptance of a non-compete agreement will be required prior to making an offer of employment, and employees or interviewees must have at least three business days to review a copy of the non-compete agreement before they are required to sign it. Both of these requirements are punishable by civil fines subject to the minimum threshold of $5,000 if violated. Importantly, the Act only governs non-compete agreements entered into or renewed after September 18, 2019.

Maryland (Senate Bill 328 [the “Bill”]): The Bill renders non-compete restrictions unenforceable against low-wage employees who earn less than or equal to $15 per hour or $31,200 per year, and invalidates contracts signed before October 1, 2019.

New Hampshire (Act Relative to Noncompete Agreements for Low-Wage Employees [the “Act”]): Effective September 8, 2019, the Act renders non-compete restrictions unenforceable against low-wage employees who earn less than 200% of the federal minimum wage ($14.50 per hour as of 2019). Non-compete restrictions are defined as any limitation on an employee to work for another employer for (a) a specific period of time, (b) in a specific geographic area, or (c) in a specific industry.

Oregon (House Bill 2992 [the “Bill”]): The Bill, which applies only to non-compete agreements entered into on or after January 1, 2020, requires employers to provide departing employees with a signed copy of their non-compete agreement within thirty days after the employees’ date of termination.

Rhode Island (Rhode Island Noncompetition Act [the “Act”]): The Act renders non-compete restrictions unenforceable against low-wage employees who earn up to $31,225 per year excluding overtime, nonexempt employees (as classified under the Fair Labor Standards Act), undergraduate or graduate student interns and workers (whether paid or unpaid), and minors. Significantly, the Act does not govern client and vendor solicitation restrictions and non-disclosure or confidentiality agreements, as well as other types of agreements such as forfeiture agreements and invention assignment agreements. The Act applies to all non-compete agreements, even if signed before January 15, 2020, with the exception of judicially imposed noncompetition restrictions.

Utah (Amended version of Utah Code Annotated 34-51-101 et seq. [the “Bill”]): Utah’s 2016 legislation limited non-compete agreements entered into on or after May 10, 2016 to a term of one year from the employee’s date of termination. In 2018, Utah further amended this legislation to limit the enforceability of non-compete agreements against employees in the broadcasting industry. Most recently, the legislature modified the statute such that a broadcasting industry non-compete agreement may be enforced as “part of a written contract of reasonable duration, based on industry standards, the position, the broadcasting employee’s experience, geography, and the parties’ unique circumstances.”

Washington (Act Relating to Restraints, Including Noncompetition Covenants, on Persons Engaging in Lawful Professions, Trades or Businesses [the “Act”]): Effective January 1, 2020, the Act renders non-compete restrictions unenforceable against employees earning less than $100,000 and independent contractors earning less than $250,000 per year. Non-competition agreement terms are limited to 18 months and agreements must be disclosed to workers prior to their acceptance of an offer of employment. Employers must provide independent consideration to existing employees in order for any new non-compete agreement to be enforceable. For laid-off employees, employers must pay full base salary throughout the term of the non-compete agreement, minus compensation earned by the employee through other employment. The statute renders unenforceable out-of-state forum selection clauses in non-compete agreements with Washington-based workers, regardless of where the employer is based. The Act applies to all non-compete agreements, even if signed before January 1, 2020, but does not govern client and coworker solicitation restrictions and non-disclosure or confidentiality agreements. Stringent damage provisions provide that violative employers seeking to enforce non-compliant non-compete agreements may be sued by the employee or the Attorney General, and may be ordered to pay the greater of “actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys’ fees, expenses, and costs incurred in the proceeding.”

Meanwhile, on October 16th, 2019, Senators Chris Murphy (D-Conn.) and Todd Young (R-Ind.) reintroduced the Workforce Mobility Act (the “WMA”), which, if passed, would render all non-compete agreements unenforceable except in the context of the sale of a business or dissolution of a partnership. As Trade Secrets Watch describes it, “the WMA would effectively apply California-like non-competition law across the entire nation and would make most states’ non-competition laws largely superfluous.” Regardless of whether this bill passes, it is clear that state and federal governments are concerned with limiting the reach of non-compete agreements and wary of the effects of leaving such agreements unchecked.