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Sponsor: Veto of bill limiting noncompete clauses hastens ‘race to bottom’ for labor

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Sponsor: Veto of bill limiting noncompete clauses hastens ‘race to bottom’ for labor

Apr 02, 2024 | 6:44 pm ET
By Evan Popp
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Sponsor: Veto of bill limiting noncompete clauses hastens ‘race to bottom’ for labor
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Gov. Janet Mills gives the State of the State address on Jan. 30, 2024. (Jim Neuger/ Maine Morning Star)

The Maine House of Representatives on Tuesday sustained Gov. Janet Mills’ veto of legislation to further limit noncompete clauses in Maine — a defeat for critics of such agreements who believe they unnecessarily restrict workers. 

Noncompete clauses, which typically prevent an employee from working for a competitor during and for a period of time after their employment, are already limited under Maine law. The bill Mills vetoed late last week, LD 1496, sought to further restrict such agreements by only allowing them in cases that would protect an employer’s “trade secrets” or when an employee has an ownership stake in a business. Trade secrets are information a company tries to keep secret and derives economic value from doing so. 

The House and Senate passed the bill, sponsored by Rep. Sophia Warren (D-Scarborough), last month. After Mills’ veto, the bill returned to the House on Tuesday, which voted 74-72 in favor of overriding the governor’s opposition. However, that fell well short of the number of votes needed to overturn a veto (two-thirds of those present). 

In her veto message, Mills referenced a 2019 law that she said has already placed strict limits on noncompete clauses, barring their use when it comes to low-income workers. LD 1496 would go too far, Mills argued, “by rendering most noncompete agreements unenforceable,” even when designed to protect confidential information. 

“The Labor and Housing Committee was presented with no evidence that the recently enacted statute is inadequate, or that noncompete agreements are being abused in Maine,” Mills said, adding that she heard from businesses who were concerned about LD 1496. 

The governor also noted that her office proposed an amendment that Warren rejected. As passed by the Legislature, LD 1496 would have eliminated a provision of current law that allows for noncompete agreements in order to safeguard confidential information or protect an employer’s “good will.” The amendment Mills’ floated would have reversed that change, permitting noncompetes to continue being enforced in those cases.

However, Mills’ version would have defined “good will” and “confidential information” in the existing noncompete statute — which does not currently define the terms — while further stipulating that noncompete agreements shouldn’t last longer than needed. 

Mills’ proposed definition for confidential information was something created, used or obtained within a business that isn’t generally known by the public. Good will would mean the advantage a company gains by creating relationships with customers and potential customers and would also extend to confidential business information.

Bill sponsor pushes back against governor’s amendment 

In an interview, Warren said she was disappointed by the governor’s veto and heard from people around the state who were also disappointed. 

“I regret that I was not able to come to a compromise, but all I can say is I hope that this effort continues in the future,” she said. 

The Scarborough Democrat also disputed Mills’ assertion that there was no evidence that noncompete clauses are in issue in Maine, saying she and other legislators were contacted by constituents impacted by such agreements. 

Warren added that she didn’t view Mills’ proposed amendment as a true compromise, saying the governor simply sought to add back in the instances where noncompete clauses could be enforced that LD 1496 was trying to eliminate. 

She also said the governor’s proposal to define good will and confidential information in statute could create confusion, as they are already well understood from case law. And Warren argued that such changes ought to go through a committee process to help lawmakers understand the implication of defining the terms along with the impact of the governor’s proposal that noncompetes last no longer than necessary.

“There was no piece of the bill that she was willing to sign and what she came back with was something that had a really ambiguous, and potentially really radical, negative effect,” Warren said of Mills’ offer. 

Warren argued that had Mills signed the bill, it would have allowed for a more competitive marketplace in which employers are incentivized to improve conditions to retain workers. And it could have potentially attracted workers to Maine, helping to address the state’s labor shortage, she said.  

“With this veto, we just continue a race to the bottom,” Warren said Tuesday on the House floor. 

Possible federal government action  

The debate in Maine over noncompete clauses comes as the Federal Trade Commission last year put forward a proposed rule that would ban the agreements. The agency said ending the use of noncompetes could increase wages by almost $300 billion a year collectively for the 30 million Americans currently subject to the agreements.  

Mills referenced the potential federal action in her veto message, arguing that it would be “ill-advised” to enact new-state level legislation right before a new national policy is announced. 

However, Warren said she and Mills are both tasked by the people of Maine to consider changes to state law. 

“I feel like it is an abdication of that responsibility … to say ‘let’s just wait and see what the federal government will do’ when I think we ought to be leading,” she said.