What are non-compete agreements?
Non-compete agreements are contracts between employers and employees that restrict the employee’s ability to work for other companies in limited ways and for a limited period of time after the employment relationship is terminated. These agreements cannot have terms that are overly broad as to the scope of the restriction (i.e., prohibit competing anywhere in the world), the period of time of the restriction, or the type of work that is restricted.
Employers use non-compete agreements to serve as a protection against competition by a former employee. These agreements are designed to prevent the former employee from using knowledge that was obtained while employed by the employer. For example , an employee may have been exposed to confidential information concerning the employer’s plans, customers or business strategies. A non-compete agreement can restrict the employee from competing with their former employer in relation to that confidential information for a certain period of time. If the agreement is properly drafted it can be an valuble tool to prevent former employees from "stealing" business or clients, or using other knowledge gained while an employee.
Maine Laws on Non-Compete Agreements
Legally, in Maine, non-compete agreements are constructed under the premise that they protect an employer’s actual or potential interests, and that protection against competitors’ encroachment is of greater importance than an employee’s right to pursue his or her trade. As a result, the law in this state does not stringently require that agreements be based on recognized and valid considerations. But that’s not to say valid consideration should not be present and/or included in your contract: it is advisable, and may help your case if litigation were to arise.
17 M.R.S.A. § 313 (1973) provides the general legal framework for restraint agreements: Unreasonable restraint; why void. Every contract by which anyone is restrained from exercising a lawful profession, trade or business of any kind, other than as a servant, is to that extent void. This shall not, however, invalidate any contract which is otherwise lawful, and by which the parties agree that the one party will not, for a specified time within a specified county, city or other specified portion of the State, engage in a business similar to that of the other party. The statute has two parts: the first states an employer may not restrain an employee from pursuing his/her business. The second part creates an exception to the rule: if an employer can show there is a legitimate and compelling business interest, the restraint will be enforced.
Maine courts also consider restrictions that prevent employees from soliciting an employer’s customers. Specifically, because Maine has a "protectible interest" in customer lists, customer lists may be protected by non-compete clauses. Under Maine law, you must prove a customer list is proprietary, meaning it must not be readily ascertainable through normal means. (Key word here is "readily"). The more effort and time it takes to arrive at such a list, the more likely a court may sustain the claim for the client.
Acceptance of consideration so that the contract is no longer void is generally applied by how well the employee performed the terms of the original contract. In reviewing whether consideration was present, courts generally do so at the time the non-compete was made, not at the time of breach or when the consideration was offered.
More recently, Maine courts have been looking into the change of employment; considering where the employer and employee reside, and how the move may impact the enforcement of the non-compete agreement.
Ultimately, the legal framework in Maine gives some leeway to employers in creating non-compete agreements. While not necessary, it is advisable to outline specific terms and conditions of the agreement, and to double check the contract’s binding legal principles with local counsel.
Eligibility for enforcement
Non-competes in Maine must be reasonable, not only in duration and geographical scope, but also with regard to the interests that the employer has in place. While at one time non-competes were viewed as invalid unless the company had sold a business and the seller was attempting to prevent the company from competing with the business being sold, courts have moved away from that approach. Now they look at what employer interest, specifically, is at stake.
Thus, an employer must have a legitimate business interest to protect with a non-compete. The Court in Boulanger v. Dunkin’ Donuts, Inc., 746 A.2d 1135 (2000), has explained an employer’s interest simply as the "employer’s goodwill," which the reasonable inferences from the facts in a particular case will demonstrate. The Court also explained that "[a]n employer’s interest in its clients’ confidential information, which the employees have been exposed to in the course of their work and may be tempted to misuse after leaving, might justify a post-termination restriction on competition." After finding a legitimate protectable interest, the court must assess whether it was infringed by the employee’s conduct. Finally, the court must balance the employer’s interest with the hardship that the restriction might cause the employee.
In Maine, courts are highly skeptical of non-competes entered into between parties who intended to maintain an ongoing working relationship. Special care must be taken if there are ongoing services.
Concerns and drawbacks
One of the central difficulties that employers and employees alike face with non-compete agreements in Maine is simply the law. Many states have common law precedent establishing what is permitted in terms of non-compete agreements; Maine however does not. Maine treats non-competes as restraints on trade and under the Restatement, section 188, such restraints are void unless there is no undue hardship on the promisor. The consideration, purpose, and scope of restraint may be always relevant to whether an undue hardship exists, but the burden is upon the employer to establish the absence of undue hardship. The 1990 Maine Supreme Court ruling in Boulanger v. Dunkin’ Donuts of America evaluated a noncompete contract that included a geographic scope simply delineated by lines on a map. The court ruled that there is no clear precedent establishing a "minimum geographic scope" for a reasonable non-compete. The court allowed the case to go forward, but ultimately ruled in favor of the employer because of a clearly defined geographic area. As there is no bright line test for Maine, it is primarily up to the discretion of the judge hearing the case whether the non-compete agreement is binding. Maine’s relative freedom from case law interpretation of non-competes means that employers and employees alike are subject to overturning in any non-compete dispute.
Exemptions and exclusions
Maine law provides certain exemptions and exceptions regarding non-compete provisions in employment agreements. The law includes express definitions of what constitutes a non-compete provision, namely one that:
(i) Prohibits the employee from engaging in employment after termination of the employment relationship for a specified period of time;
(ii) Restricts the employee from entering into certain lines of business or from otherwise carrying on a profession or trade for a specified period of time; or
(iii) In any manner restrains the employee from carrying on a lawful profession, trade, or business.
However, as described above, non-compete agreements are not void per se under Maine law, but rather will be enforced only if they are reasonable restraints given the facts of each case. However, there are certain exceptions. For example, for individuals who are deemed "medical employees," only non-compete provisions that restrict the employee from competing at a "place of employment" within 25 miles of a health care facility are enforceable. Additionally, the duration of time for any non-compete provision involving an attorney licensed to practice law in Maine is limited to one year.
Fabricating the non-compete agreement
Forever, and ever, and ever and ever, the war has been waged over proper drafting of non-compete agreements in Maine. I’ll try to cut to the chase here for you, even though I see many practitioners not reading and/or not understanding these very issues:
- Non-competes must be reasonable in time AND geography. For example, a sales representative, working in Central Maine cannot be non-competed from a territory that includes Southern Maine. That said, a limited geography is much less of an issue for a supervisory employee; if the person is a street level, or on-the-ground salesforce employee, then the courts will be much stricter. Also, the geographic limitation depends on whether you are protecting customer specific/technical information (that may justly justify a larger geographic scope) rather than just your general customers (which would allow for a much smaller geographic territory).
- The contract must offer fair consideration to the employee for signing. For example, a non-compete signed by a prospective hire, offered as part of the job offer, is sufficiently supported by such an offer of employment in Maine . However, if the employer tried to modify the non-compete language after the fact, or if the employer tried to get the employee to sign the non-compete AFTER the hire, the employer would either be unable to demonstrate that the employee had actually bargained for it and/or the employee would likely have met his or her burden of demonstrating that the contract was a contract of adhesion, meaning that they had no choice but to sign, so the agreement would be invalid.
- Maine’s contract law requires consideration for restrictive covenants to last "throughout the period of the restrictions." This means, at a minimum, really, that the employee must receive constant consideration, and the employee must receive something at the end. Courts have held that, for example, an extra six months of salary offered in return for a one year period of restriction is enough to support the non-compete.
- Make them mutually understandable. Try to have the agreement use simple, clear language. Do not use archaic terms, like "forbear," and assure that there is no need to refer to input from an expert to understand its terms. Use basic English sentences and phrases.
Alternatives to non-compete agreements
Alternative Agreements to Non-Compete Agreements in Maine
Various other contractual forms of agreements can be utilized in lieu of a non-compete agreement. These include:
Non-disclosure Agreements:
A basic tool to protect confidential information, often called a non-disclosure agreements, prohibits a former employee from disclosing or using employer trade secrets and/or confidential information for some period of time after leaving the employer.
Work Product:
An intellectual property assignment provisions, often referred to as a work product provision may assign all work product created by an employee or contractor during the employment relationship to the employer, and may be supported by consideration paid at the start of the employment, such as a signing bonus, even without any non-competition provisions.
Non-solicitation Agreements:
Employment agreements may restrict post-employment solicitation of employer’s employees or salespeople, and/or customers. These are often called non-solicitation agreements and may or may not be accompanied by a non-competition provision.
Actions to take when presented with a non-compete
Step 1: Read it and ask yourself the following questions: If an employer has presented you with an employment agreement containing a non-compete provision, the first thing to do is read the document—and understand that you don’t have to agree to it. It is a contract. If you don’t have an employment contract already, you don’t have to sign this one. Moreover, if you do have a contract, that contract may very well prohibit your employer from forcing you to sign an additional agreement (like a non-compete) or even a new contract. This is significant if you’ve been with a company for a while and want to know if your employer can go back and present you with a non-compete.
Step 2: Decide whether you want to negotiate the provision or not and weigh the pros and cons. Typically, if you don’t negotiate on this piece of paper that the employer has presented you, you’re going to have to live with it for a year or two after you leave that employer’s company. And it may be a restriction in your ability to compete, provide services, and move around the market and work for a competitor. It is a significant limitation in the field and often comes with a significant trade-off, which may be payment. In other words, unless you receive something contractual in exchange for signing this, like $5,000, and unless you have a very specialized skill set, a non-compete is a bad deal for you as an employee.
If the employer does not want to give you anything, it just wants you to agree to some maximum non-compete without any consideration, that should really be an indicator as to how important they think you are to them. If they don’t value you highly enough to give you something in exchange for this, then that should be a signal to you that you might not want to be there anymore.
Step 3: Seek out price points other than monetary. Often, that’s not the only way you can be satisfied. You can get more time, a shorter distance for how far away from where you work for the company you can go, or just the opportunity to ask for permission to go out and try to earn your own living independent of them.
Step 4: Seek legal counsel—it’s well worth the money. In my experience, every single non-compete provision I have cross-examined an employer on, they either didn’t know it existed at the time they hired the person or they didn’t think it was important. The employee never knew about it. So the employee has exposure and financial risk with no idea that the risk was out there, and the employer might be able to say it forgot it ever existed, too. If your employer comes to you and says, "Please sign this," and "here’s this piece of paper," you should get legal advice.
Future of non-compete agreements
While the law in this area is not likely to change soon, non-competes are more susceptible to future legal change than most businesses realize. The national trend has been toward greater scrutiny and enforcement of non-competes and other restrictive covenants. Some states have passed legislation or have legal precedent that may limit the scope or enforceability of common forms of employee non-competes. Maine has yet to embrace any of these national trends, but it would be naive to assume that Maine is immune from such changes.
In fact, there has long been a movement within the Maine legislature to limit the use of non-compete agreements in certain contexts. This past year for example, the Maine legislature considered two bills aimed at limiting employee non-compete agreements in the high tech industry. Unfortunately, both bills failed to pass at the time of this writing.
For alarmed opponents to employee non-compete agreements , the best case for additional anti-restrictive covenant legislation or judicial action in Maine lies in a broader perception that employee non-compete agreements in fact contribute to increased unemployment and stagnation of the economy. If, as some people believe, the national economy improves and unemployment decreases, the risk of having to enforce a perceived overbroad non-compete with an employee in order to ensure that he or she cannot take a job in a competitive field may not be worth the downside that comes with such an action. Moreover, if unemployment increases to historic highs, all else equal, the value of any significant employee departure will go down, thereby lessening the need to take harsh measures to prevent those departures.
No one knows exactly how the economy will progress in the next few years, or how this will affect the enforceability and perceived value of non-compete agreements in Maine. It may simply be that an obvious trend toward enforcement will eventually take hold in Maine.