What Happens if You Breach a Non-Compete Agreement?
Non-compete agreements (also referred to as non-compete clauses if they are part of a larger employment contract) are among the most common employment agreements. In most cases, they prohibit a departing employee from engaging in the same or similar type of work for a certain amount of time and within a certain geographic area. But in uncertain economic times such as ours, many former employees may find it difficult to honor their non-compete agreements. Learn more about non-compete agreements, as well as what happens when you breach them, below. For more detailed information, please contact a Maryland employment lawyer.
Non-Compete Agreements Are Enforceable in Maryland
Non-compete agreements protect an employer’s investment in its employees. Often, an employer will go to great lengths to train a new employee and provide him or her the experience necessary to succeed. Non-compete agreements prevent such employees from quitting and taking their newly-acquired know-how to one of their former employer’s competitors.
One of the cornerstones of American labor law is the concept of at will employment — i.e., employers may hire and fire anyone for any reason or no reason, while employees may move from job to job as they see fit. Courts consider non-compete agreements to be restraints on free trade and are thus looked upon with some skepticism. However, courts are willing to enforce non-compete agreements under certain circumstances. In Maryland, courts enforce non-compete agreements so long as they:
- Are supported by adequate consideration
- Are ancillary to the employment contract
- Are limited in duration and geographic scope to protect the employer’s business
- Do not impose an undue hardship on the employee
- Are not against the public interest
The courts determine whether a non-compete clause satisfies these requirements on a case-by-case basis. One of the most common non-compete agreement disputes concerns the reasonableness of the agreement’s duration and geographic scope, which often requires an analysis of the uniqueness of the skills required for the job. For example, a non-compete agreement that prevented an orthodontist from working at a competitor within 100 miles for one year likely would be found to be more reasonable than one that prevented a bartender from working within 500 miles for 5 years.
Exceptions: The Noncompete and Conflict of Interest Clauses Act
The Noncompete and Conflict of Interest Clauses Act makes non-compete agreements null and void for employees who earn less than or equal to $15 per hour or $31,200 per year. The act applies to former employees who go on to work for new employers as well as those who become self-employed in the same or similar business. However, it does not apply to provisions of non-compete agreements that concern the taking or use of client lists or other proprietary client information from the former employer.
Penalties for Breaching a Non-Compete Agreement
Disputes over non-compete agreements rarely begin with litigation. Most often, your former employer will first send a cease and desist letter advising that it considers you to be in breach of your non-compete agreement and requesting that you refrain from further work. Your former employer may then petition a court for a declaratory judgment finding that the non-compete clause is valid and enforceable.
Further penalties for breaching a non-compete agreement will be dictated according to the agreement’s terms. Most non-compete agreements entitle the non-breaching party to seek:
- Injunctions (i.e., an order prohibiting the former employee from continuing to work in breach of the agreement)
- Damages (in the amount of the employer’s loss)
- Liquidated damages (if the non-compete agreement contains a liquidated damages clause)
Given the difficulty of quantifying the employer’s precise damages, as well as the difficulty of enforcing such a judgment against an employee, employers most often seek injunctions against their former employees.To obtain a preliminary injunction to enforce a non-compete agreement against a former employee, the employer must show:
- A likelihood of success on the merits
- Irreparable harm if the injunction is not granted
- The opposing party would not suffer greater injury by granting the injunction
- The injunction would not be contrary to the public interest
Because injunctions are considered “extraordinary remedies” and could prevent you from working in your chosen profession, you should speak to a Maryland employment lawyer if you are facing the prospect of an injunction.
Contact a Maryland Employment Lawyer for More Information about Non-Compete Agreements
If you are facing the prospect of non-compete enforcement actions due to an alleged breach, you should contact a Maryland employment lawyer for assistance. To get started, please contact a Maryland employment lawyer at the Law Firm of J.W. Stafford for a consultation by calling 410-514-6099.