In this Issue:
- Important Maine Employment Law Changes That Your Nonprofit Should Know About
- Benefit Corporations Now Official Under Maine Law
- E-Bulletin Information
Important Maine Employment Law Changes That Your Nonprofit Should Know About
In May I wrote about Maine’s passage of an historic earned leave time requirement for employers having at least 11 employees. Since then, the Legislature and Governor have passed several other changes to state employment laws that will affect all employers, including nonprofit organizations. All of these laws take effect on September 18, 2019. Overall, these are progressive statutes that will help Maine workers and we should celebrate their passage. Here are the highlights:
- Noncompete Agreements Substantially Restricted – 2019 P.L. 513 (L.D. 733) establishes significant new limits on so-called noncompete agreements, where employees agree not to work for a competitor after ceasing employment with their current employers. Over the past couple decades, employers across the nation have broadened and routinized the use of these agreements, to such an extent that they are thought to hold down wages. This law declares noncompete agreements contrary to public policy and unenforceable except if narrowly tailored to protect the employer’s trade secrets, confidential information, or goodwill, and only if the employer notifies the employee of the agreement prior to the original offer employment. Even if these exceptions are met, noncompete agreements are flatly prohibited for any employee earning at or below 400% of the federal poverty level (as of 2019 about $50,000 for a single individual, rising to about $100,000 for a four-person household). Similarly, agreements between two or more employers that restrict soliciting or hiring an employer’s employees are also prohibited. Although noncompete agreements are more common in the business sector, I have occasionally seen them discussed or implemented in the nonprofit realm.
- Compensation History Inquiries Prohibited – Under 2019 P.L. Ch. 35 (L.D. 278) employers may no longer inquire about the compensation histories of prospective employees. Such inquiries, or attempts to discover such information through other means, will constitute unlawful discrimination. The bill recognizes that hiring or compensation decisions based on past compensation levels tends to perpetuate wage inequality between men and women. Employers are encouraged to review their application and interview forms and practices to ensure compliance.
- Gender Identity Discrimination Prohibited – 2019 P.L. Ch. 464 (L.D. 1701) amends the Maine Human Rights Act by prohibiting discrimination based on gender identity in employment and public accommodations. Any nonprofit that owns, leases or operates a place of public accommodation, such as a museum, visitor’s center or an office that is open to the public, falls within this statute. In particular, the bill prohibits restricting a single-occupancy restroom (i.e., one that is for use by one individual or for family or assisted use and has a lockable outer door) to members of one sex.
- Pregnancy-Related Discrimination Prohibited – 2019 P.L. 490 (L.D. 666) also broadens the Maine Human Rights Act by prohibiting discrimination based on any “pregnancy-related condition,” including pregnancy, childbirth or related medical conditions such as lactation. Employers are required to provide reasonable accommodation for such conditions unless such accommodation would impose “undue hardship” on the employer’s business operations. Several examples of reasonable accommodation are expressly noted, including longer break times and more comfortable seating equipment. A separate bill passed in 2009 already requires Maine employers to provide break time and private spaces other than bathrooms for nursing mothers to express breast milk.
Benefit Corporations Now Official Under Maine Law
Ever heard of a “Benefit Corporation”? You might start seeing this phrase in the coming years, now that Maine has enacted a statute officially establishing this new kind of for-profit business. A Benefit Corporation is required to have a purpose of not just economic profit, but also a material positive impact on society and the environment. Following in the footsteps of 35 other states, the Maine Legislature passed and Governor Mills signed 2019 P.L. Ch. 328, which authorizes the formation of Benefit Corporations.
Any newly forming business corporation can incorporate as a Benefit Corporation, and any already existing business corporation (i.e., organized under Title 13-C of the Maine Revised Statutes) can amend its articles to become a Benefit Corporation. Electing Benefit Corporation status is not to be undertaken lightly. The statute sets forth a rigorous set of requirements, including:
- The Articles of Incorporation must have a general purpose of creating either general public benefit (a material positive impact on society or the environment) or a specific public benefit such as serving low-income communities, improving human health, or protecting the environment, among others.
- Directors and officers must consider the effects of any corporate action or inaction according to a variety of factors, including the shareholders, employees, customers, the local and global environment, and community and societal implications.
- A Benefit Corporation must produce and make available on its website or upon request by any member of the public an Annual Benefit Report, which must include a compliance statement by an independent benefit director. For small enterprises, these reporting requirements may be more onerous than for a small nonprofit.
- Any director and any group of shareholders owning at least 2% of the total shares can bring a benefit enforcement proceeding, which is a lawsuit claiming that the Benefit Corporation has failed to pursue or create general public benefit or a specific public benefit purpose set forth in its articles.
Although there is some overlap between the two, a Benefit Corporation is not to be confused with a B Corp. The former is any corporation that is established under a particular state’s benefit corporations law, while the latter is any business that has been certified by the national nonprofit B Labs as meeting a detailed set of public benefit criteria. At present there are six Maine companies that have earned B Corp status. A Maine business that’s set up as a business corporation can be either a Benefit Corporation or a B Corp, or can aim for both categories. Unfortunately, if a business is set up as a Limited Liability Company, it cannot elect for Benefit Corporation status under Maine’s new statute, although it could still apply for B Corp or low-profit limited liability company status.
In general, a Benefit Corporation is structured more like a business than a nonprofit corporation. A Benefit Corporation still has a profit motive, and is owned by one or more shareholders, whereas a nonprofit may only have specific nonprofit purposes and is not owned by anyone. Moreover, a Benefit Corporation is governed by all of the general laws that apply to business corporations in Title 13-C, the Maine Business Corporation Act. Thus, the Benefit Corporation requirements function as an overlay on these background business corporation laws. In contrast, nonprofit corporations are governed by Title 13-B, the Maine Nonprofit Corporation Act, which has very different governance rules. Furthermore, charitable or educational nonprofit corporations that achieve 501(c)(3) status can qualify for federal and state income tax exemption, offer charitable deductions to donors, in some cases achieve property tax exemption, and apply for foundation grants. But Benefit Corporations are not eligible for these tax incentives, with the possible limited exception of foundation grants.
So how do the arrival of Benefit Corporations and B Corps in Maine affect the nonprofit sector? Here are a few implications that come to mind right off the bat:
- People who have an idea to improve the world and want to start an entity now have another choice. I often receive inquiries from those who are trying to decide between starting a business or a nonprofit. The Benefit Corporation is somewhat of a hybrid, and could be an attractive option for those organizations that cannot or choose not to qualify as a nonprofit but don’t want to become a traditional profit-focused business.
- Sometimes nonprofits own for-profit subsidiaries as a way of generating additional revenue. In certain cases it might make sense for these subsidiaries to elect Benefit Corporation and/or B Corp status.
- Nonprofits often collaborate with businesses for fundraising projects or program delivery. Working with Benefit Corporations and/or B Corps might add value to the relationship by comforting the nonprofit’s donors and other constituents as to the beneficial nature of the business entity.
For more about Benefit Corporations and B Corps:
I send the Maine Nonprofit Law E-Bulletin 3 or 4 times per year to provide updates and analysis on legal and policy matters respecting Maine nonprofit organizations. I do my best to keep the messages brief, timely, and useful to nonprofit staff, board members, volunteers, advisors, and donors. At the same time, no one may rely on these E-Bulletins as legal advice, and I encourage you to consult a qualified attorney for advice on any particular situation.
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