As the cannabis industry rapidly develops and technology advances, competition will be fierce in states that have legalized marijuana. It is important for companies to understand the various ways they can protect their trade secrets. It is also critical to understand the nuances of applicable labor and employment laws when developing a strategy. While some companies ask their employees to sign noncompete agreements, recent changes in Maine law make it clear that this strategy poses significant legal risks. A better approach is often to draft confidentiality and non-solicitation agreements that are more likely to hold up in court. This post explains the impact of LD 733, “An Act to Promote Keeping Workers in Maine,” which went into effect this fall.
Changes to Maine Law Effective September 19, 2019
Earlier this year, Governor Mills signed legislation limiting employers’ use of noncompete and non-poach agreements and restrictive covenants in Maine.
The new law explicitly states that because noncompete agreements are considered contrary to public policy, they are presumed to be enforceable only to the extent necessary to protect (i) the employer’s trade secrets, (ii) the employer’s confidential information, or (iii) the employer’s goodwill. Although this concept is not new, this reinforces the need to draft such agreements so that they accurately reflect that they are protecting these interests.
However, the new law goes further. It states that employees earning below 400% of the federal poverty level for a single individual (currently $49,960, but subject to change each year) cannot be permitted or required to enter into a noncompete agreement under any circumstances. For those employees who can enter into such agreements, the law requires employers to give such employees a minimum of three business days to consider and negotiate the noncompete agreement before an employer can require the applicant/employee to sign.
Importantly, even if an employer is able to have an employee sign such an agreement, the law states that, except in very limited circumstances, a noncompete agreement does not take effect until the employee has been employed for at least one year, or six months from the date the agreement was signed, whichever is later.
The law does not appear to restrict an employer’s right to limit outside employment when an employee is currently employed by an employer. The law has no impact on the use of confidentiality agreements or non-solicitation agreements between the employer and the employee, which is why those types of agreements are the preferred option in most circumstances. The penalty for violating the new noncompete law is a fine of not less than $5,000.00.
While likely less common in the cannabis industry, the new law also states that employers can no longer enter into agreements with one another that restrict one employer from soliciting or hiring the other company’s employees or former employees (often called “no-poach” agreements).
If you are concerned about protecting your company’s trade secrets, reach out to Drummond Woodsum’s Labor and Employment group to discuss the various tools available.