Maryland recently joined the growing number of states to enact laws that restrict the use of noncompete agreements for low wage employees with the passage of Senate Bill 328. A noncompete agreement is a contract executed between an employee and employer that typically states the employee is prohibited from working for a direct or indirect competitor of the company for a certain period of time, or within a certain geographic area, after the termination of employment.
On May 28, 2019, the Noncompete and Conflict of Interest Clauses Act went became law and it will go into effect on October 1, 2019. The law prohibits the use of noncompete agreements for low wage employees, which are defined as those that either earn equal to or less than $15.00/hour or $31,2000 annually. The law prohibits noncompete agreements for covered employees if they restrict the employee from entering into employment with a new employer or to become self-employed in a same or similar business area.
Any agreements that violate this law, even if freely entered into between an employer and covered employee, will be null and void. The law applies to Maryland employees regardless of if they executed the agreement outside of the state.
Notably, the law is not limited to post-employment conduct of an employee, meaning that the law would also prohibit an employer from preventing a current covered employee from moonlighting during employment for a competitor.
The law is also notable for what it does not cover. First, the law explicitly states that it does not apply to agreements that restrict the taking of client lists or company proprietary information. This means that employers can still enter into agreements with any employee (regardless of their wage) restricting their ability to solicit clients or take proprietary information post-employment. The law is silent on whether employers can bar former employees from soliciting other employees.
Lastly, the law does not provide an employee with a private right of action to sue his employer for violations of the law (i.e., for making an employee enter into a prohibited noncompete agreement). This omission means that there are no prescribed damages or penalties against an employer. Accordingly, if the employer seeks to enforce the prohibited agreement, the employee will be able to raise the new law as a defense to strike down the agreement.
Attorneys in Saul Ewing Arnstein & Lehr's Labor and Employment Practice are available to assist employers with restrictive covenant agreements and other employment law issues. For more information or questions on this matter, please contact the author Michael Cianfichi, or any member of Saul Ewing Arnstein & Lehr's Labor and Employment Practice.