Frequently Asked Questions About Maryland Noncompete Agreements
Maryland is one of the many states that recognizes and enforces noncompete agreements. These are employment contracts where an employee agrees not to work in the former employer’s area of business within a geographical region and for a set period of time.
While they sound unfairly restrictive, Maryland courts understand that many employers need noncompete agreements to survive. Most people would agree that it would be detrimental to the employer if after learning all the “tricks of the trade,” an employee quits then immediately starts his or her own business in direct competition with the former employer.
Noncompete agreements exist to help avoid these situations. But they aren’t always enforceable and when they are, specific elements must be present.
What Does it Take for a Noncompete Agreement to be Enforceable?
When considering whether a noncompete agreement is enforceable, Maryland courts will examine a variety of factors, such as:
- Whether the noncompete agreement is against the public interest.
- If the restrictions unduly restrain the former employee.
- Whether the noncompete agreement only does what is reasonably necessary to protect the employer.
- How unique the former employee’s skills are.
- The nature and extent of the former employee’s exploitation of his or her relationship with the employer’s current customers.
- If the noncompete agreement is necessary to prevent the misappropriation of the employer’s confidential information.
These seem like common sense, and for the most part, they are. However, applying these factors to actual situations can be a bit challenging for courts.
An overarching theme is that of fairness. Courts don’t want employees to take advantage of their employer and put them out of business. On the flipside, courts don’t want employers to be able to hold an employee economically hostage for no good reason.
Another important requirement for valid noncompete agreements is consideration. Consideration is a legal term which refers to something of value each side must exchange to create a contract. In the case of noncompete agreements, an employee’s consideration is giving up his or her legal right to work wherever he or she wants. In return, the employer must provide something of value to the employee to serve as consideration.
In Maryland, a job offer will be enough consideration to bind the employee to a noncompete agreement. If a noncompete agreement is presented to an existing employee, the employer may provide consideration in the form of a promise of substantial continued employment. Alternatively, the employer could provide another type of benefit, such as a cash payment. This would be likely in the case of a recently fired employee who is asked to sign a noncompete agreement.
Is the Noncompete Agreement Still Valid if the Employee Is Fired?
Probably, although Maryland courts have hinted that if an employee is fired for a reason that’s not the employee’s fault, the court might not enforce the noncompete agreement against the employee if it believes the firing is unfair.
Are There Limitations on Noncompete Agreements?
Yes. The most common and significant limitations concern the geographical area and length of time for which the noncompete agreement is enforceable.
Geographical limits of a noncompete agreement will typically coincide with the employer’s business territory. What constitutes an employer’s business territory will depend on the type of business the employer is in. For instance, a noncompete agreement could potentially be enforced for the entire United States if the employer did business in all 50 states. In contrast, a geographical limit that spans the entire country probably won’t be enforceable when the employer’s business territory is only a few states or counties wide.
Time limitations must also be reasonable, but making this determination can depend on many things. One such factor is how long it will take for the employer to recover once the employee leaves. For example, if the employer will need two years to build back up its client base after an employee departs, it will probably be reasonable for the noncompete agreement to last two years.
What Happens if an Employer Claims a Former Employee Violated the Noncompete Agreement?
The first thing the employer will do is probably try to get the employee to stop the violation without resorting to litigation. The employer might contact the employee or the employee’s current employer and explain that the employee is in violation of the noncompete agreement. This might be enough to stop further economic harm to the former employer. If this doesn’t work, litigation is a likely next step.
When an employer sues a former employee for violating a noncompete agreement, the employer has the burden of proving the noncompete agreement is valid and enforceable. If the employer can’t overcome this initial burden, the employee usually automatically wins the lawsuit.
If the employer successfully proves a valid and enforceable noncompete agreement has been violated, it may receive relief in the form of monetary damages and/or injunctive relief.
Monetary damages can include predetermined damages outlined in the noncompete agreement. It can also include actual economic losses suffered by the employer.
Injunctive relief is a type of equitable remedy and basically refers to court directives telling someone to stop doing (or start doing) a particular thing. With the enforcement of a noncompete agreement, an injunction will probably consist of the court telling the former employee to stop the violation. This might include erasing social media posts that solicit business away from the former employer or quitting a job at a competing company.
If a court finds that part of the noncompete agreement is invalid, it may still enforce the valid portions. Maryland courts do not like adding to an existing contract, but are willing to remove the invalid provisions to make it enforceable. This is called “blue penciling” or the “blue pencil doctrine” and finds its origins from the days when editors used to mark up documents with a blue pencil.
For More Information
If you’re interested in learning more about Maryland noncompete agreements, you may contact us. An employment attorney with experience in employment contracts, including noncompete agreements, will be more than happy to discuss your situation.