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: 

1. A likelihood of success on the merits
2. Irreparable harm if the injunction is not granted
3. The opposing party would not suffer greater injury by granting the injunction
4. 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.