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Campsen’s Business BLAWG Vol. 2

 

Campsen's Business Blawg

May 15, 2018, Vol. 2
by Marc Campsen

 

Covenants Not to Compete and Their Not-So-Uncertain Future in Maryland

 

Covenants not to compete (non-competition clauses) contained in employment contracts are permitted in many states across the country, including Maryland. Traditionally, non-compete clauses have been imposed by businesses on salespeople, executives with intimate knowledge of a business, employees that are also owners of the business and other high-level employees.

Recently, businesses have begun attempting to impose non-competes on low-level employees. For example, the fast food sandwich chain Jimmy Johns began requiring its low-wage employees to enter into non-competes prohibiting them from working at a similar style sandwich shop within two miles of any Jimmy Johns location in the 46 states in which its stores were located both during their employment and for two years after.

Ultimately, Jimmy Johns faced lawsuits from states including New York and Illinois that asserted the non-competes served no public policy and decreased the mobility and opportunity of vulnerable, low-wage workers by forcing them not to seek other employment with the threat of being sued. 

This recent trend is unlikely to take root in Maryland. Historically, Maryland is an employee-friendly state when evaluating whether an employer can enforce a non-compete. Maryland typically enforces non-competes in only two circumstances: when an employee provides unique services or to prevent misuse of trade secrets and confidential business/customer information (including customer goodwill). Even in these limited circumstances, the non-compete must still be no broader than necessary to protect the employer’s interest and set forth with some particularity the restricted activities. Additionally, non-competes must be reasonable in how long they last and how far they extend geographically. Interestingly, Maryland permits courts to strike certain prohibitions within a non-compete that are not enforceable while leaving the enforceable provisions in place. The Jimmy Johns nationwide prohibition would likely be stricken as unenforceable in Maryland but the two-year limitation would probably be enforceable. However, because a low-wage employee of a fast food chain does not fall within either of the two permissible Maryland non-compete categories, the entire Jimmy Johns non-compete would likely be unenforceable.

 “Non-competes must be reasonable in how long they last
and how far they extend geographically.”  

Finally, if an employee is bound by an enforceable non-compete in Maryland, the employer may recover monetary damages for any breach, prevent the former employee from working in a related capacity for the new employer for the duration of the non-compete, return any trade secrets/confidential customer information and prevent sharing such information with the new employer.

By way of example, I was involved in a lawsuit in which a U.S. subsidiary of a foreign corporation hired a prominent member of a U.S. competitor to assist in expanding its U.S. presence. The former employer sued the former employee for breach of a non-compete provision in the employee’s employment contract. Ultimately, the parties settled and the former employee agreed to refrain from providing services to the U.S. subsidiary that were similar to the services provided to the former employer for the duration of the non-compete provision and pay a monetary sum in the tens of thousands of dollars. The non-compete in that case was enforceable because its duration was only 12 months and the former employee was a fairly high-level executive with significant knowledge of confidential information and extensive knowledge of customer-related information.

For more information on non-compete clauses, non-solicitation clauses and other restrictive covenants in employment agreements, please contact me.


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Marc Campsen

About The Author:

Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.
Read Marc’s bioemail | phone: 410-659-1343 

 

 

DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.