Maryland's health care noncompete and conflict of interest law, passed in 2024 but effective July 1, 2025, was intended to solve a host of problems with respect to noncompetition and similar agreements in Maryland's healthcare landscape. Instead, it may have opened a Pandora's Box instead of providing solutions.
The legislation appears fairly simple on its face. It applies to "employment contracts or similar documents or agreements" executed on or after July 1, 2025 pursuant to which the employee is required to be licensed under the Health Occupations Article of the Maryland Annotated Code (the "Annotated Code") and "is employed in a position that provides direct patient care."
Under the statute, if the employee earns $350,000 or less in "total annual compensation" or is a "veterinary practitioner" or "veterinary technician" under the Title 2, Subtitle 3 of the Agriculture Article of the Annotated Code,1 then a "noncompete" or "conflict of interest provision" in an employment contract or similar document or agreement that restricts the ability of the employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade is null and void as against the public policy of the State of Maryland.
On the other hand, if the employee (other than a "veterinary practitioner" or "veterinary technician") earns more than $350,000 in "total annual compensation," the employee may be bound by a noncompete or conflict of interest provision, provided that (1) the period of the restriction may not exceed one year from the last day of employment and (2) the geographic restriction may not exceed 10 miles from the employee's "primary place of employment."
It appears that approximately 90 persons and organizations testified in favor of the law before the Maryland legislature. Only a handful testified against it.
The ambiguities and lack of clarity inherent in the law are only now becoming apparent; and, without significant revision by the Legislature, resolution will come only through expensive and time-consuming litigation. Specific problems include the following:
What is the meaning of "total annual compensation"?
The statute does not define the term "total annual compensation," which is one of the key phrases it uses. Is "compensation" limited to salary? Does it include bonuses, benefits payable to or for the benefit of the employee, amounts set aside or allocated on the employer's books as deferred compensation, employer contributions to qualified retirement plans, options, or a host of other possible things that might come within the meaning of this term? If compensation includes intangibles, how are they valued and who values them?
As of what point in time or over what period is "total annual compensation" to be determined?
The statute leaves completely open the question of the point in time at which total annual compensation is determined or the period over which it is to be measured. Is total annual compensation determined only as of the start of employment? As of the termination of employment? Is it the employee's average total annual compensation over the entire term of employment or over a shorter period? If total annual compensation is the average of the employee's total annual compensation, should this be the mean or the median of the employee's total annual compensation? Should it be a weighted average of the employee's total annual compensation for whatever period is selected?
What is the meaning of the term "conflict of interest provision"?
The meaning of this term is far from clear. Does it include a non-solicitation covenant? Presumably, it was meant to encompass such a term; however, Section (B)(ii) of the statute suggests otherwise since it refers to a conflict of interest provision as a provision having a limited radius that may not exceed 10 miles from the primary place of employment. Non-solicitation provisions do not have any radius.
Likewise, is a restriction on the solicitation of employees a prohibited provision? Arguably, it is a conflict of interest provision. However, it is difficult to see how such a provision would restrict an employee from becoming self-employed or from working for another. This casts doubt on whether any kind of non-solicitation provision is prohibited, given that a non-solicitation covenant is not something that implicates a radius restriction or prevents an employee from working for another or one's self.
What is the meaning of "primary place of employment"?
If an employee works at only one location, the application of this term would seem to be clear. However, in many healthcare practices, this isn't the norm. Assume, for example, that the employee spends the employee's time at two different locations, spending 55 percent of the time at one office and 45 percent of the time at another office. Assume, further, that the bulk of the employee's patient contact occurs at the facility where the employee spends only 45 percent of the time and that the employee primarily does administrative work at the other location. Suppose, as another example, that there, in fact, is no "primary place of employment" because the employee works at multiple offices, spending an equal amount of time at each. As yet a third example of the ambiguity created by the statute, suppose the employer changes the employee's "primary place of employment" a few months prior to the date the employee's employment terminates, so that the bulk of the employee's patient contacts are contacts developed at the original place of employment? What, if anything, in these examples would be enforceable?
Do the restrictions prevent the enforcement of ordinary contractual duties or common law fiduciary duties that otherwise would be owed by an employee during the course of employment?
A first blush reading of the statute suggests that the restrictions apply only to provisions that take effect upon the termination of the employee's employment. A more careful reading suggests otherwise, though, because the application of the statute is not limited to restrictions that are triggered by the termination of the employee's employment. Very clearly, the statute applies to any noncompete or conflict of interest provision in an employment agreement employment contract or similar document that restricts the ability of the employee to enter into employment with a new employer or become self-employed without reference to the time of application. Arguably, therefore, a common provision in an employment agreement that says that during the period of employment, the employee may not work in the same field with another employer or practice on his or her own would be unenforceable, although this surely cannot have been the intent of the draftspersons and although this would turn the law of fiduciary duty on its head.
Is a liquidated damages clause void under the statute?
Arguably, a liquidated damages clause in an employment agreement should not be prohibited under the statute. It neither restricts the ability of an employee to enter into employment with the new employer nor restricts the ability of an individual to become self-employed in the same or similar business or trade. Such a clause imposes a cost, but it clearly is not a "restriction". The employee remains free, regardless of the employee's financial obligation (which of course, must be reasonable) to work for another or become self-employed.
Is a restriction in an ordinary buy-sell agreement void under the statute?
The statute leaves open the question of whether restrictions contained in buy-sell agreements typically entered into by co-owners of a healthcare practice are restrictions contained "in an employment agreement or similar document or agreement . . ." Presumably, such agreements do not fall within this category, given the nature of the relationship between or among the counterparties. However, suppose one of the parties has only a five percent ownership or even just a one percent ownership interest? Does that change the nature of the relationship?
How does a court address a statute that is so rife with ambiguity?
Clearly, the statute reinforces the healthcare provider-patient relationship, although, at the same time, it acts as a check on the incentive of a more experienced healthcare professional to bring on board an associate who otherwise would have had the opportunity to grow under the tutelage of the more experienced provider. Why invest, goes the argument, if the practice you have spent years building might walk out the door with the person you have just spent so much time training? The check on a prospective employer's incentive is further enhanced by the fact that the statute is so riddled with ambiguity that a prospective employer is not likely to be able to determine exactly what will be enforced and what will not be enforced.
The current legislative session has passed without the introduction of a bill to make the statute easier to interpret and apply. Unfortunately, this likely leaves it up to the Courts to create their own gloss on the statute, likely in a very piecemeal fashion. Thus, despite whatever the statute has done to affirm the provider-patient relationship, clarity is needed to avoid the burdens it will likely impose, financial and otherwise, on employed healthcare providers and their employers.
1. Under the statute, veterinary practitioners and veterinary technicians may not be subjected to restrictions regardless of their compensation.
