Assisting Maryland Employees With Non-Compete Benefit Agreements and Claims
Non-compete agreements were, at one time, reserved for high-level executives or key sales personnel in a company. With globalization and the increasing reliance on technology to deliver services to clients, corporations have rapidly expanded their use of non-compete agreements to mid-level executives and a broad range of highly-skilled employees within the corporation. Globalization and the reliance on technology has required corporations to recruit highly-skilled employees to remain competitive in the marketplace. The increasing use of non-compete agreements by corporations appears to be tied to minimizing the likelihood of these highly-skilled employees leaving the organization, as well as minimizing the risk that these employees might take trade secrets or sensitive client information with them either to start their own company or to give an edge to a competitor.
While these non-compete agreements serve the interests of the corporation, they can wreak havoc for the unwary employee. Non-compete agreements can preclude an employee from working in their industry for a competitor or starting their own business for months or years after leaving their employer. In addition to the financial implications of being restricted from pursuing all employment opportunities in one’s industry, there are also emotional and psychological consequences that can result from having to “sit on the sideline” for a particular length of time during your career as a result of a non-compete agreement. Because of the serious consequences, it is absolutely essential that every employee presented with an employment agreement obtain competent legal representation from an experienced Maryland employment lawyer.
The information provided below is to assist employees in understanding how Maryland courts have analyzed non-compete agreements between employees and employers. As you may have guessed, courts analyze these non-compete agreements in a fact‑intensive manner. Although the discussion below only mentions non-compete agreements, courts throughout Maryland analyze non-disclosure, non-solicitation and confidentiality agreements to protect confidential or trade secret information using the same analytical framework that they use when analyzing non‑compete agreements.
What Workers Should Know About Maryland Non-Compete Laws
Non-compete agreements, at their core, are restraints on trade. Said more bluntly, non-compete agreements distort the employee “marketplace” and limit the ability of people to work, for a time, for an employer that may be offering them more money or more prestige than their current or former employer. This causes courts to heavily scrutinize these agreements. With that being said, make no mistake that a Maryland court will enforce a valid non-compete agreement that is reasonable and does not pose an undue hardship on the employee.
Unlike some jurisdictions, non-compete agreements in Maryland are not governed by a statute. Rather, Maryland courts, through a multitude of written opinions on the trial court and appellate levels, have set the boundaries for the permissible limits of non-compete agreements entered into between employees and employers. That’s where a non-compete attorney can help.
A threshold requirement for a valid non-compete agreement in Maryland is that it must be supported by adequate consideration and ancillary to the employment contract. Although it may sound onerous, this is not a significant hurdle for an employer to overcome. Continued employment by the employer is sufficient to satisfy the adequate consideration requirement. This means that if you are already employed by the employer, the employer does not have to give you a bonus or a promotion in exchange for you executing the non-compete agreement that they presented to you. In Maryland, if the employer simply allows you to continue working for a substantial period after the agreement is signed, then that is deemed adequate consideration to support a non-compete agreement. See Simko, Inc. v. Graymar Co., 55 Md. App. 561 (1983) (holding that other than continued employment, a bonus may also constitute valid consideration to support a non-compete agreement). Conversely, if you have not yet been hired, then the company hiring you will be adequate consideration to support a non-compete agreement.
Covenants not to compete can only be applied and enforced in two circumstances: (1) where a company has employees who provide unique services; or (2) to prevent the future misuse of trade secrets, routes or lists of clients, or solicitation of customers. Assuming one of these threshold factors is met, the court will impose a reasonableness analysis to determine whether the non-compete agreement is reasonable on its face as to both duration and geographic restrictions on the employee, which we will discuss shortly.
The determination of whether a non-compete agreement is reasonable is a highly-fact intensive inquiry. Maryland courts have made clear that their evaluation of whether a non-compete agreement is reasonable is guided by “if the restraint is confined within limits which are no wider as to area and duration than are reasonably necessary for the protection of the business of the employer and do not impose undue hardship on the employee or disregard the interests of the public.” Maryland courts are adamant that there is no hard and fast rule to apply in determining what protection of the business of the employer is reasonably necessary, what constitutes undue hardship on the employee or how to precisely weigh the scales in evaluating the interest of the public.
Duration and Geographic Restrictions in Maryland
As a general rule, Maryland courts have consistently upheld non-compete agreements that lasted up to two years after an employee’s departure from the company. See TEKsystems, Inc. v. Bolton, 2010 U.S. Dist. LEXIS 9651 (D. Md. Feb. 4, 2010) (upholding 18 month non-compete provision prohibiting former employee from working for competing staffing companies focused on technical service personnel); PADCO Advisors, Inc. v. Omdahl, 179 F. Supp. 2d 600 (D. Md. 2002) (finding two year non-compete provision reasonable against former sales manager for mutual fund company); Gill v. Computer Equipment Corp., 266 Md. 170 (Md. 1972) (finding two year non-compete provision reasonable). While rare, Maryland courts have held a three year non-compete provision enforceable. Holloway v. Faw, Casson & Co., 319 Md. 324 (1990).
Courts also require that a non-compete provision be reasonable in terms of the geographic scope in which it precludes a former employee from competing with his or her former employer. Just as with the durational limitation, Maryland courts evaluate whether the geographic limitation on the former employee is reasonable in determining whether the non-compete provision is enforceable.
Generally speaking, Maryland courts will find, as reasonable, geographic restrictions that consist of or are near the former employee’s office or territory. See TEKsystems, supra (upholding non-compete provision that precluded former employee from working within a 50-mile radius of his previous office); Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118 (Md. 1967) (upholding non-compete provision that precluded former employee from competing in the six counties where he had worked while with his former employer). The rationale being that if the goal of enforcing a non-compete provision is to protect the employer’s legitimate business interests, then the employer’s legitimate business interests extends to the clients and relationships that its employee developed while working at the company.
Depending on the industry and the number of competitors, Maryland courts also have found that a broader geographic limitation in a non-compete agreement can be reasonable. Compare National Instrument v. Braithwaite, 2006 Md. Cir. Ct. LEXIS 12 (Md. Circ. Ct. Aug. 3, 2006) (concluding geographic limitation prohibiting former employee from working for competitors in North America and Mexico for two year period was reasonable where the industry at issue was very specialized and had a limited number of competitors) with Deutsche Post Global Mail, Ltd. v. Conrad, 292 F. Supp. 2d 748 (D. Md. 2003) (holding that the non-compete agreement was unreasonable where the employer dominated the market because enforcement would impose undue hardship on employee and was not necessary to protect employer’s interests).
Undue Hardship on Employee
If the non-compete agreement poses an undue hardship on the employee, Maryland courts may find it unenforceable. In conducting an undue hardship analysis, the court balances the legitimate business interests of the employer against the potential hardship the employee will experience. This is an analysis undertaken by the court using principles of equity and represents a high hurdle for an employee to demonstrate. In short, the employee has to show hardship above and beyond the routine hardship that an employee faces from having to comply with a non-compete agreement.
For example, courts have found non-compete agreements to be unenforceable and to impose an undue hardship on an employee when the non-compete agreement forces an employee to give up earned or promised benefits like pensions. See Food Fair Stores, Inc. v. Greeley, 264 Md. 105 (1972) (holding that covenant requiring the employee to forfeit his pension benefits if he worked for a competitor was an undue hardship). Additionally, when an employee has endured a significant change in job duties and a reduction in pay, Maryland courts have found a non-compete agreement to be invalid based on the ground of undue hardship. See Ecology Servs. v. Clym Envtl. Servs., LLC, 181 Md. App. 1, 22-25 (2008).
The “Blue Pencil” Doctrine
If a court finds that there is overbroad language in a non-compete agreement, such as an overbroad geographic limitation, it may resort to “blue penciling” the non-compete agreement in an effort to salvage it. When the court blue pencils overbroad language in a non-compete agreement, it is only permitted to remove the offensive contractual language, not to supplement or to rearrange any of the language. See Fowler v. Printers II, Inc., 89 Md. App. 448, 465-66 (1991). Maryland’s intermediate appellate court has described blue penciling as follows:
[T]he court takes its pen and draws a line through the offending restriction. If the covenant is still enforceable after the applicable language is removed, then the remaining portions of the contract are enforceable.
Fowler, 89 Md. App. at 466. At its core, blue penciling gives the employer one last escape hatch, allowing the court one last opportunity to find the non-compete agreement valid and enforceable.
Enforcement of the Non-Compete Agreement in Maryland
An employer typically begins enforcement of its non-compete agreement shortly after it is notified of the employee’s intent to voluntarily depart the company. Oftentimes, the first step an employer takes to ensure that its non-compete agreement will be complied with is to remind the departing employee, in writing, that they are subject to a non-compete agreement. Likewise, many employers will ask the departing employee to share information about where they intend to work and the title of their new position. Of course, if the employee was abruptly terminated by the company, the employer would not get this information.
Note that the circumstances of an employee’s departure can give rise to a basis for challenging the enforceability of a non-compete agreement. For example, if an employee was terminated from employment through no fault of their own, this could give rise to a basis to challenge the enforceability of the non-compete agreement. See Ruhl v. F.A. Bartlett Tree Expert Co., 245 Md. 118, 128 (1967). Again, in analyzing whether a non-compete agreement is enforceable, the facts matter.
Former employees should assume that their former employer is proactively seeking information regarding their new employment during the term of their non-compete agreement. It is not unusual for an employer to learn where their former employees obtained new employment following their departure from the company. The former employer often obtains this information by asking that employee’s former colleagues, running Google searches or hiring a private investigator. Let there be no mistake about it, employers who have gone through the trouble and expense of drafting a non-compete agreement are not likely to walk away from the possibility of enforcing that non-compete agreement against their former employee and, if necessary, that former employee’s new employer.
Should the former employer become aware that their former employee may be in violation of the non-compete agreement, then the former employer is likely to send a cease and desist letter to their former employee and his or her new employer. The goals of the cease and desist letter are twofold. The first goal of the cease and desist letter is to compel the former employee to stop allegedly breaching the terms of the non-compete agreement. The second goal of the non-compete agreement is to put the former employee’s new employer on notice that it could be subject to legal action if it does not take affirmative steps to stop the alleged violation of the non‑compete agreement.
In Maryland, an employer that desires to enforce its non-compete agreement has the ability to pursue preliminary and permanent injunctions, as well as monetary damages for the breach of the non-compete agreement. An injunction simply means that a court can order the employee to stop engaging in conduct that may be in violation of the non-compete agreement, including ordering the employee to stop working for his or her new employer.
In deciding whether to grant an employer’s request for a preliminary injunction, Maryland courts look at four factors:
- the likelihood that the plaintiff will succeed on the merits;
- the balance of convenience determined by whether greater injury would be done to the defendant by granting the injunction than would result from its refusal;
- whether the plaintiff will suffer irreparable injury unless the injunction is granted; and
- the public interest.
The burden of producing sufficient evidence to satisfy these four factors is on the employer seeking the injunctive relief. Because the trial court’s decision as to whether to grant or deny injunctive relief is given deference by the appellate courts, it is absolutely essential that any employee being threatened with an injunctive action be represented by counsel.
Besides injunctive relief, employers also can obtain monetary damages for a former employee’s breach of a non-compete agreement. These monetary damages would include the monetary amount that the former employer suffered as a result of the former employee’s breach of the non-compete agreement. Alternatively, if the non-compete agreement expressly provides for it, the employer may be able to obtain liquidated damages, which is a set monetary amount previously agreed upon by the parties for a breach of the non-compete agreement.
Without question, the monetary damages at issue in these type of cases can be significant, making it imperative that one obtain legal representation. If an employer successfully obtains a money judgment against its former employee, the employer can then pursue various assets of its former employee. In short, a monetary judgment can have a significant adverse financial impact on the former employee and should not be taken lightly.
The Options Your Employment Lawyer Will Present
Now that you know the legal framework under which non-compete agreements are analyzed in Maryland, it is important to understand that you have options. While the best time to deal with a non-compete agreement is before you sign one, a sophisticated non-compete lawyer can utilize various strategies to assist you in avoiding or minimizing the impact a non-compete agreement might have on you.
Negotiate the Non-Compete Agreement Before You Sign It
If your employer has presented you with a non-compete agreement, you should not hesitate to negotiate the scope or duration. Indeed, a non-compete attorney can readily assist you in these critical negotiations. By negotiating the language of the non-compete agreement before executing it, you can minimize the likelihood of entering into a broad and lengthy non-compete agreement that could adversely impact your future employability.
Seek Protection from Your New Employer
If you have decided to begin looking for new employment with a competitor, despite the language in the non-compete agreement you executed, then you may want to ask your new employer to indemnify, defend and hold you harmless against any action by your former employer for breach of the non-compete agreement. If your new employer agrees to indemnify, defend and hold you harmless, you can obtain financial protection from the actions of your former employer in enforcing the non-compete agreement.
Challenge the Enforceability of the Non-Compete Agreement in Court
Employees can challenge the validity of a non-compete agreement in court. You have the ability to go to court and to make a case that your employer’s non-compete agreement is not enforceable. To successfully make such a challenge, you would have to establish that the non-compete agreement fails to satisfy one or more of the key elements discussed above that are required to give rise to a valid and enforceable non-compete agreement. By working with an employment law attorney early on, we can take the lead in putting together the strategy needed to make a strong challenge to the enforceability of your employer’s non-compete agreement.
There are a host of other options available to overcome a non-compete agreement, but the key is to consult with a sophisticated Maryland non-compete lawyer as soon as possible.
Maryland Non-Compete FAQs
Q. WHAT’S REQUIRED FOR A NON-COMPETE TO BE VALID?
In Maryland, to be enforceable, non-compete agreements must:
- Be supported by adequate consideration,
- Be ancillary to a general employment contract,
- Be limited in geographic area and duration only in a way that is reasonably necessary for the employer’s protection, and;
- Must not impose an undue hardship on the worker, or violate public policy. (See Becker v. Bailey, 299 A.2d 835, 838 (Md. 1973).
Q. WHICH INTERESTS MAY AN EMPLOYER PROTECT WITH NON-COMPETE AGREEMENTS?
There are only two reasons that a Maryland employer may require an employee to sign a non-compete. Those two interests are:
- Unfair competition from former employees (e.g. preventing former employees from using trade-secret information, or profiting from valuable customer or leads lists.)
- When the employee provided unique services to the employer. For example, In the 1973 case Millward v. Gerstung Int’l Sport Educ., Inc., a well-known soccer coach left his job as Gerstung’s camp director to start his own, competing soccer camp. The Millward Court found that consumers would be confused into thinking the new camp was Gerstung’s, and that it was reasonably necessary for Gerstung’s to protect their business. The Court emphasized that Coach Millward’s “reputation and qualifications” were a direct reason for the success of Gerstung’s program. (See Millward v. Gerstung Int’l Sport Educ., Inc., 302 A.2d 14, 16 (Md. 1973)).
Q. IS YOUR NON-COMPETE AGREEMENT ENFORCEABLE?
The likelihood of your non-compete agreement being enforceable depends on several factors. In Maryland, non-compete claims are handled on a case-by-case basis as opposed to being governed by a general statute. To determine whether or not your non-compete agreement can be enforced, it is in your best interest to consult with an experienced Maryland non-compete lawyer who will review the specific details of your situation, including the terms of your agreement as well as whether or not any employee hardships, clauses, limitations, or contradictory terms are present in the contract.
Q. HOW DOES THE “BLUE-PENCIL LAW” AFFECT MY NON-COMPETE CONTRACT?
Maryland follows the “blue-pencil” doctrine, which means that the courts may “blue-pencil” any problematic provisions of a non-compete agreement without rendering the entire instrument void. Under common law, if a restrictive covenant had a provision that was invalid for reason of law or mistake, the agreement was not valid.
However, under the blue-pencil law, if the court determines that certain provisions in your non-compete agreement are invalid or unreasonable, the court may decide to strike those provisions, while leaving the remainder of the contract intact. Once the offending provisions are stricken, the court will then determine if the non‑compete agreement is still enforceable and valid.
The blue-pencil doctrine is considered employer-friendly, so employees must read and understand their agreements fully, knowing that the intent of the employer is likely to be followed by the court. Understandably, employers may have several questions regarding their rights, which is why it is best to speak with a non-compete attorney in Maryland who can explain the doctrine and what you are entitled to under State laws.
Q. WHAT IS THE CHOICE OF LAW PROVISION?
Non-compete agreements in Maryland may contain what is known as a “choice of law provision”. A choice of law clause allows contract disputes to be decided in a particular jurisdiction. What this means is that while an employee may sign a non-compete agreement in Maryland, reside and work in the state, the non-compete laws of another state may be enforced instead.
This type of provision can create serious consequences for employees who may not have even been aware of the specifics regarding this clause. It is imperative that any worker who discovers a choice of law provision in their non-compete agreement seek legal counsel immediately for guidance on how best to handle and resolve the matter.
Q. WHAT CAN MY EMPLOYER DO IF THEY CATCH ME BREAKING MY NON-COMPETE AGREEMENT?
When enforcing non-compete agreements, Maryland employers may seek:
- Preliminary and permanent injunctions
- Liquidated Damages, if such a remedy was outlined in the non-compete agreement.
Don’t risk your future and livelihood by signing a non-compete agreement that may place your future on serious hold. Before you sign, contact the knowledgeable Maryland employment lawyers at The Law Firm of J.W. Stafford, L.L.C. to discuss your agreement. Ensuring that your employer follows the legal requirements for a non-compete may save you from devastating unemployment down the road.
Obtain Legal Representation From a Maryland Employment Lawyer
Any employee considering either executing a non-compete agreement or taking action that could possibly run afoul of a non-compete agreement that they’ve already executed must seek legal counsel. As explained above, an employee’s failure to timely obtain legal counsel could have disastrous financial consequences for the employee. At The Law Firm of J.W. Stafford, L.L.C., our Maryland employment lawyers frequently counsel clients at various stages of dealing with non-compete agreements. If you need guidance in dealing with a non-compete agreement or legal representation to challenge the non-compete agreement, please do not hesitate to contact us via our website or call us at 410-514-6099 to schedule a consultation so that we can analyze your needs and put together a comprehensive strategy for you.
Disclaimer: The information above is not intended to be legal advice but to simply provide you with general information. Please contact a Maryland non-compete attorney at The Law Firm of J.W. Stafford, L.L.C. or call us at 410-514-6099 if you need legal advice.