3 Myths About Noncompete Clauses in Maryland

Most people have heard of noncompete agreements, but few are aware of their breadth and the specific kinds of interests they serve to protect. It is important for employers to be aware of the ways in which they can benefit from the implementation noncompete clauses into their employee contracts. If you are interested in drafting a noncompete agreement or one of your employees has breached a noncompete clause, contact a Baltimore business advisory attorney right away. William S. Heyman, a Maryland business litigation attorney at the Heyman Law Firm discusses 3 myths that are commonly held about noncompete agreements…

Myth #1: Noncompete Agreements are Unenforceable in Maryland

This is probably the biggest myth surrounding noncompete agreements, and it is simply not true. Noncompete agreements are enforceable if they meet the threshold defined by relevant Maryland case law. There are two interests that can be protected by a noncompete agreement:

• Former employees partaking in unfair competition (e.g. providing subsequent employers with trade secret information)
• Former employees provided the employer with unique services (e.g. soccer coach leaves employment at Company A’s camp to start his own camp)

A non-compete agreement will be enforced if a court finds:

1. Adequate consideration to support the contract;
2. The agreement was ancillary to the employment contract;
3. Limited in geographic scope and duration; and
4. The agreement does not impose an undue hardship on the employee and it is not against public policy

Maryland follows the “blue pencil doctrine” where a noncompete agreement may be enforced even if a court finds that part of it is voidable. The unenforceable provision will be removed or revised as long as it can be easily severed and will not have to be rewritten or supplemented.

Myth #2: Employers Should Draft Broad Noncompete Clauses

Forcing employees to sign broad noncompete clauses is the wrong way to go if an employer wants the clause to actually be enforced. In 2015, in the case of Electronic Security Services. Inc. v. Higgs, a Maryland court held that a noncompete clause that restricted an employer from obtaining employment from a company’s competitor “in any role conceivable” was overbroad and unenforceable. The Court went on to explain that even if such a provision is reasonably necessary to protect the company’s legitimate business interests, this need was not alleged in the complaint.

It is wise for an employer to draft noncompete clauses that are narrowly tailored to protect their interests. If there is any inkling that a court might interpret an agreement as overbroad, the employer should, in detail, demonstrate why a restriction is necessary to the legitimate business interests of the company. Retaining the services of a Baltimore business advisory attorney is a useful resource in drafting an enforceable noncompete clause.

Myth #3: There are No Remedies for Employers Whose Noncompete Clauses Have Been Violated

If an employee breaches a noncompete agreement and divulges a trade secret to his new employer, that action obviously cannot be undone. That would be like trying to put toothpaste back in the tube. Nevertheless, employers whose noncompete clauses have been breached are not totally without remedy. Three remedies that employers can pursue upon a breach of contract by a former employer include:

• Preliminary and permanent injunctions
• Damages
• Liquidated damages (if included in the noncompete clause)

In order to be granted a preliminary injunction, an employer must show:

1. Likelihood of success on the merits;
2. If the injunction is not granted, the employer will suffer irreparable harm; and
3. It would not be against public policy to grant the injunction.

Former employees who have violated a covenant not to compete agreement may be held liable for damages. The burden of proof is typically on the employer to show the court with reasonable certainty that harm was suffered as a result of the breach. Courts in Maryland have allowed employers to recover expectation damages whereby the employer recovers the profits that would have been earned had the breach never occurred. Damages can also be obtained against companies who hired the former employee under a tortious interference with contract theory.

Noncompete agreements that contain liquidated damages provisions may be enforced so long as they reflect a reasonable expectation of damages rather than a penalty. The Maryland Court of Special Appeals in Willard Packing Co. v. Javier held that without a “rational relationship to anticipated actual damage” a liquidated damages clause is an unenforceable penalty. In summary, if an employer wants to include a liquidated damages provision in a noncompete agreement, it should not be so overbroad that it appears to be a penalty. It should include damages that are directly correlated to the harm incurred by a breach.

Baltimore Restrictive Covenant Attorney

If you need assistance drafting a restrictive covenant or a former employee has breached your noncompete agreement, contact the Baltimore non-compete agreement lawsuit attorneys at the Heyman Law Firm right away. An experienced attorney is a necessary tool in drafting noncompete clauses that are enforceable and not overbroad in duration and scope. Similarly, the Baltimore breach of contract attorneys at the Heyman Law Firm have extensive experience litigating breach of contract actions against former employees. Call the Heyman Law Firm today at (410) 305-9287 and schedule a confidential consultation.