On Non-Compete Agreements
Tools:
Non-Compete Agreements
There are really two kinds of non-compete agreements; those between companies and those between an employer and employee.
Agreements between companies are subject to heightened scrutiny under the anti-trust laws and the complexities of the operation of those laws make any simple generalized explanation dangerous to rely upon.
This note concerns non-compete agreements between employer and employee.
Maryland caselaw makes it quite clear that once an employee has moved on he (or she) is free to compete against his or her former employer, as could any stranger, subject to certain qualifications.
The common-law (case law) based qualification concerns confidential business information. The clearest case of "confidential business information" concerns trade secrets, but information not amounting to a trade secret may still be subject to a right of confidentiality, depending on the circumstances in which the information was aquired and with what understandings it was given. For example, information given subject to a signed confidentiality agreement may not be used in derogation of the agreement.
Non-compete agreements also can somewhat restrict a former employee's' post-employment actions. We say "somewhat" because, notwithstanding legitimate employer interests in avoiding competition from those who they have nurtured and trained, and who have intimate knowledge of the employer's practices and clientele, the trend of the law is not to favor such agreements. However, non-compete agreements will be enforced in almost all jurisdictions, including Maryland and the District of Columbia, if they are "reasonably" limited in time and subject matter. In the words of a recent well-reasoned decision:
A covenant not to compete is to be assessed on a case-by-case basis and will be enforced “so long as [its] terms are reasonable in light of the interests of the employer, the employee, and the general public.” Maryland Courts look at three factors in determining a covenant’s reasonableness:
(1) whether restraint is necessary for the protection of the business or goodwill of the employer, (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill, and (3) whether the degree of injury to the public is such loss of the service and skill of the employee as to warrant nonenforcement of the covenant.”
The variables and subtleties as to what makes a non-compete agreement enforceable are complex, and the reader is cautioned neither to enter into, seek to interpret the meaning of, or draw conclusions as to the enforcability of a non-compete clause or agreement without consulting counsel.
With this caution, some "polar" examples frame a rough outline of what will likely be held to be "reasonable" and hence enforceable, and what will not. On one hand, and generally speaking, a one-year agreement not to compete within one mile of a retail outlet by engaging in a business selling the same kind of goods is likely going to be enforced in almost every judrisdiction that enforces such agrement at all. On the other, a three year agreement not to compete against the same outlet by engaging in any kind of retail business whatsoever within a 100-mile radius is most likely not enforceable. In considering whether a particular agreement's geopgraphy and time limitation is enforceable. a court may consider the nature of the market (urban vs. rural), the nature of the business (are there many similar businesses located virtually everywhere or is the business fairly unique with few competitors?), the scope of the exclusion (agreements may be limited to a defined list of customers, a specific scope of goods or services, or otherwise), the nature of the consideration given for the agreement, and the practical effect of the agreement on an alleged breacher's ability to participate in commerce, either as a worker or entity.
Our lawyers have drafted many non-compete agreements and regularly counsel businesses and individuals on the meaning and enforcability of agreements to which they have bound themselves or are considering entering into. We can efficiently help you when the need arises.
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