Noncompete and Conflict of Interest Clauses Act - What Maryland Businesses Need to Know
Businesses struggle to protect intellectual property and trade secrets. They also fear training employees to have those same employees take the company’s clients and customers to begin a new competing business. For that reason, many businesses utilize detailed non-compete, conflict of interest, non-solicitation, confidentiality, and non-disclosure clauses in their employment agreements.
The purpose of these and similar employment clauses is to protect the employer. Maryland’s new NCICA (Noncompete and Conflict of Interest Clause Act) limits an employer’s ability to use some employment clauses with certain employees.
What Does the Maryland Non-Compete and Conflict of Interest Clause Act Cover?
Maryland is not the first state to enact laws restricting the use of non-compete and conflict of interest clauses in employment contracts. Under Maryland’s NCICA, a conflict of interest or non-compete clause is not enforceable for employees who earn an amount equal to or less than $31,200 annually or $15.00 per hour. The law became effective on October 1, 2019.
In a typical non-compete agreement, an employee is prohibited from working for a competing employer after leaving the company. Valid non-compete clauses specify a length of time and/or distance the employee is prohibited from working for a competing company.
The new law contains no provision for allowing existing non-compete agreements to remain in force and effect. Therefore, any existing non-compete clauses that violate the new laws would be void.
What is the Penalty for Violating the New Non-Compete Law in Maryland?
The new law does not address penalties for violating the law. It creates no framework for employees to object to prohibited non-compete clauses in employment contracts, nor does it create a way to enforce the law.
Therefore, it is assumed that a non-compete or no conflict clause that violates the law will be void on its surface. If an employer accuses an employee who earns less than the maximum compensation stated in the NCICA of violating a non-compete or conflict of interest clause, the employee would have an affirmative offense to the allegation. The employee only needs to prove that he or she earns an amount equal to or less than $15.00 per hour or $31,200 annually to defeat an employer’s allegation.
What Makes a Non-Compete Clause Enforceable?
Usually a court examines many factors to determine if a non-compete or conflict of interest clause is enforceable. Those factors include, but may not be limited to:
Is the non-compete clause against the public interest;
The uniqueness of the employee’s skills;
Does the clause unduly or unjustly restrain the employee from earning a living to support himself and his family;
Is the non-compete agreement limited in scope to what is necessary to protect the employer;
Whether the non-compete agreement is necessary to protect the employer’s trade secrets and intellectual property; and,
What was the nature of the employee’s alleged violations of the non-compete or no conflict clause?
Now, courts will also add the new factor from the NCICA to the list of factors to consider when determining if a non-compete clause is valid. Fairness is typically an overriding factor for courts when they review employment contracts. Employers who may be unsure whether their current non-compete agreements or no conflict clauses might not hold up in court may want to consult with a Maryland business attorney before conflicts arise.
