Maine Governor’s Veto of Non-Compete Ban Bucks Growing Trend Among States and Federal Trade Commission
Amidst a wave of non-compete bans sweeping California, North Dakota, Oklahoma, Minnesota and, most recently, the nation via the Federal Trade Commission’s non-compete prohibition, Maine Governor Janet Mills departed from this growing trend and vetoed L.D. 1496, An Act To Prohibit Noncompete Clauses (“L.D. 1496”) in April 2024. If enacted, the L.D. 1496 would have effectively foreclosed employers from entering into non-compete clauses with employees in Maine.
L.D. 1496 permitted non-competition covenants only in three specific nonemployment-related situations, subject to certain conditions: (i) the sale of a business prohibiting the seller from opening a competing business in the same geographic area as the sold business; (ii) a shareholder in a limited liability company who sells or disposes all of the shareholders shares; or (iii) member of a partnership if the partnership is dissolved. L.D. 1496 also banned non-compete agreements between out-of-state employers and Maine residents.
In vetoing the bill, Governor Mills looked to both the past and future of non-competes. Historically, she explained L.D. 733, An Act to Promote Keeping Workers in Maine. P.L. 2019, Ch. 513 (“L.D. 733”), enacted in 2019, already places significant limitations on employers’ use of non-compete agreements. Among other things, L.D. 733 bans employers’ use of non-competes with low-income workers whom non-competes most adversely impact. Further, and significantly, if an employer requires a non-compete as part of employment, L.D. 733 requires an employer to disclose that requirement in any job advertisement. Given L.D. 733’s protections, Governor Mills concluded there was “no evidence that the recently enacted statute [wa]s inadequate,” nor was there evidence employers abused non-compete agreements in Maine.
L.D. 1496 was poised to heighten L.D. 733’s protections, even in circumstances where employers sought to use non-competes as a means to protect their confidential information from disclosure to commercial competitors. In explaining L.D. 1496’s overbreadth, Governor Mills explained how employees are often entrusted with employer trade secrets and know-how, ranging from manufacturing techniques, commercial strategies, to other confidential information integral to the success of a business. Governor Mills drew upon such salient justifications underpinning employers’ use of non-competes as well as employers’ significant investments in employees – monetarily and developmentally. Governor Mills explained: “It would be both unfair and contrary to public policy to prohibit employers from requiring a commitment from their employees not to take what they have learned and immediately put that sensitive information to work for a competitor.”
Prospectively, Governor Mills also naturally considered the FTC’s then-anticipated non-compete ban, reasoning that “enacting new state-level restrictions at this time would be ill-advised.”[1]
Governor Mills’ veto solidifies employer trade secret protections for the time being, keeping intact employers’ ability to bring breach of contract claims, among others, against employees who breach non-compete obligations and/or disseminate employer trade secrets. While Maine employers must remain compliant with L.D. 733’s requirements, they can utilize non-competes – and pursue legal action against breaching employees – to protect their confidential information and trade secrets. Governor Mills’ decision marks a victory for employers in the ever-evolving, and increasingly hostile, non-compete landscape.
FOOTNOTES
[1] See Sheppard Mullin’s blog post discussing the recent Ryan, LLC decision narrowly enjoining the FTC’s non-compete ban.
