Maryland Bans Noncompete Agreements for Certain Workers

September 23, 2019

By: Stephen B. Stern

Maryland enacted a statute that prohibits businesses from entering into noncompete agreements with employees that are paid below certain monetary thresholds.  The new statute amends the Maryland Labor and Employment Code (by adding Section 3-716) and will take effect October 1, 2019.

Under the new statute, companies shall be prohibited from entering into a “noncompete or conflict of interest provision in an employment contract or a similar document or agreement that restricts the ability of an employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade.”  The restriction applies to employees who earn $15.00 per hour or less or $31,200 annually or less.  The restriction also applies regardless of whether the “contract or similar document” was entered into in the State of Maryland.

Notably, the statute specifically states that it does not apply to “an employment contract or a similar document or agreement with respect to the taking or use of a client list or other proprietary client-related information.”  In addition, the statute specifically states that it may not be construed by a court when interpreting a noncompete agreement or conflict of interest provision that is entered into with an employee making more than the compensation restrictions set forth in the statute.

Despite the seemingly straight forward nature of the statute, there may be some issues that need to be determined by courts.  For example, does the statute prohibit “moonlighting”?  In this regard, the statute states that it shall be unlawful for a company to enter into a “noncompete or conflict of interest” agreement or similar document “that restricts the ability of an employee to enter into employment with a new employer.”  While the noncompete provision would limit only certain types of employment, the “conflict of interest” language could potentially be construed broad enough to ban employment agreements or policies that preclude employees making below the compensation thresholds from working second jobs, even if they are not with a competitor.

This statute is noteworthy because Maryland has now joined the growing list of states that have enacted some restriction on the ability of companies to enter into noncompete agreements with employees.  On the other hand, the Maryland ban on noncompete agreements seemingly should not affect large numbers of companies or employees because employees who are typically (although not always) subject to noncompete agreements earn more money than the thresholds set forth in the statute.  Nevertheless, for those companies with employees in Maryland, this statute should be considered in consultation with counsel when working on employment agreements and other workplace policies that are part of a trade secret protection program.