Restrictive Covenants and Non-Competes

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Maryland Employment Lawyer Handling Restrictive Covenants and Non-Competes

Also Serving  Silver Spring, Glen Burnie, Columbia, Frederick, and Howard and  Anne Arundel Counties

While employers often have legitimate interests to protect with non-competition, non-solicitation, and other restrictive covenants, the Maryland courts place limits on these contract provisions’ enforceability. Attorney Joyce E. Smithey brings more than 18 years’ experience to drafting, negotiating, enforcing, and disputing the enforceability of restrictive covenants under Maryland law.

Restrictive covenants are among the most heavily negotiated and heavily disputed provisions in employment contracts. While employers have business interests that they need to protect, employees also have legitimate concerns about preserving their ability to pursue job opportunities (or go into business for themselves) when they leave their current employment. These competing interests often put employers and high-level employees at odds, both during contract negotiations and after their relationships end.

Joyce E. Smithey is a career employment law attorney who has more than 18 years’ experience representing employers and employees in Maryland. She has particular experience in contract negotiations and disputes involving restrictive covenants, and regularly represents clients in severance negotiations involving the enforcement of restrictive covenants as well. If you need experienced, insightful advice for a contract or severance negotiation, or if you need representation for a dispute involving a non-compete or other restrictive covenant, contact Ms. Smithey for a confidential consultation today.

Common Types of Restrictive Covenants

Broadly speaking, in the employment context, a restrictive covenant is a contract provision that prevents an employee from taking certain actions that could harm the business interests of his or her employer. Restrictive covenants in employment contracts generally fall into four categories:

  • Covenants that prohibit competition with the employer
  • Covenants that prohibit soliciting or providing services to any of the employer’s clients or customers
  • Covenants that prohibit soliciting or providing services to clients with whom the employee had contact during his or her employment
  • Covenants that prohibit soliciting or hiring the employer’s employees

Frequently, employers will use multiple restrictive covenants in combination in order to protect themselves against competition from their former employees as much as possible.

Requirements for Non-Compete Enforceability

Among the various types of restrictive covenants, covenants not to compete (or “non-competes”) tend to cause the greatest concern for both employers and employees. On the one hand, employers need to be able to invest in employees without concern that their investments will ultimately be used against them. On the other, employees need to maintain adequate flexibility to earn a living, should they decide to pursue alternative opportunities.

Recognizing these competing concerns, the Maryland courts have established a test for assessing the enforceability of noncompetition covenants. While this test is obviously of concern for parties facing litigation, employers and employees seeking to negotiate non-competes must keep the test in mind, as well. In Maryland, for a non-compete to be enforceable, it must:

  • Be designed to protect a legitimate business interest of the employer (such as preserving trade secrets or goodwill);
  • Be reasonable in geographic scope and duration;
  • Not be harmful to the general public; and,
  • Not be unreasonably burdensome to the employee.

As you can see, the test does not establish a clear rule for when non-competes will or will not be enforceable. Instead, it requires careful analysis of a number of factors that take into consideration the specific nature of the employment relationship, the employee’s background and position, and the level of protection required to serve the employer’s needs. Other factors that may weigh in the analysis include:

  • The value of the employer’s trade secrets, goodwill, and other intangible assets
  • The level of sensitive information to which the employee has access
  • The level of contact the employee has with clients and vendors
  • Whether the employee provides any “unique or extraordinary” services and the employee’s overall importance to the organization
  • The amount of time and geographic scope necessary to prevent harmful competition by the employee
  • The level of market competition and any danger of a monopoly due to competitive restrictions favoring the employer
  • The opportunities (or lack thereof) available to the employee after termination of the relationship in light of the competitive restrictions imposed

While the Maryland courts have the power to modify overly restrictive non-competes, it is generally not in either party’s best interests to rely on the courts to establish the scope of their competitive restrictions (although, depending upon the circumstances, this may be the only option). In most cases, both parties will benefit from negotiating reasonable terms that they can expect to hold up in court.

Speak with Maryland Employment Law Attorney Joyce E. Smithey

To speak with attorney Joyce E. Smithey about your needs, please call (410) 269-5066 or request a consultation online. With offices in Annapolis, Ms. Smithey represents employers and employees throughout Maryland.