By:  Ari Lichterman, Esq.

Employers invest significant time and resources in hiring and training employees, developing clients, and designing proprietary business information.  Because of this significant investment, employers need tools to protect their business interests, client relationships, confidential information, and competitive positioning.  Enter the restrictive covenant. 

A restrictive covenant is a provision in a contract that prevents or limits what actions an employee can take after their employment ends.  There are different types of restrictive covenants.  Many people have heard of a “non-compete” agreement, but there are others as well, such as non-solicitation and non-disclosure agreements.  Knowing what types of restrictive covenants are available is the first step to protecting against the risk of losing key information or business to competitors. 

But more important is knowing when and how to use them effectively, ensuring they can withstand legal challenge.  How a business crafts any restrictive covenants in its employee contracts will determine whether the restrictive covenant serves its intended purpose of protecting the business or becomes an unenforceable restraint which undermines that goal by creating unnecessary legal and compliance risk.

What Types of Restrictive Covenants Are There?

The most common types of restrictive covenants include:

1. Non-Compete Agreements
   • A non-compete agreement is a provision in a contract (or a standalone agreement) that prevents an employee from working for competitors or starting a competing business for a specified amount of time (e.g., 2 years) within a specified geographic area (e.g., 25 miles).  This is the broadest type of restrictive covenant because, if it is defined too broadly, it can limit an employee’s mobility and ability to earn a living and can be viewed as a restraint on competition. Because of their breadth, non-compete agreements are heavily scrutinized and subject to legal challenge. Nevertheless, when drafted appropriately, they can be an effective tool for protecting against unfair competition.
2. Non-Solicitation Agreements
   • Sometimes referred to as a “no poaching” agreement, a non-solicitation agreement prevents a former employee from contacting company clients or employees.  Non-solicitation of client clauses prevent former employees from capitalizing on relationships that they developed during their employment for the benefit of the employer, and which they are now trying to take for themselves. Non-solicitation of employee clauses typically are found in industries where businesses invest in employees’ training and professional development and there is strong demand for highly skilled employees.  This type of restrictive covenant is less restrictive than a non-compete because it does not limit where a person can work and therefore typically faces less scrutiny.  
3. Confidentiality / Non-Disclosure Agreements (NDAs)
   • A confidentiality or non-disclosure agreement, commonly referred to as an “NDA,” protects certain proprietary information, sensitive business data, or trade secrets by preventing a former employee from sharing such information.  This information often includes client lists, pricing structures, business methods, production processes, software algorithms, and marketing plans.  NDAs typically outline the types of information the business considers confidential and the steps those with access to such information must take to protect and safeguard it. 

Are Non-Competes Legal?   Federal and State Law Summary  

Federal Enforcement

In recent years, there has been a push to ban non-compete agreements.  In 2024, the Federal Trade Commission (“FTC”) voted to implement a rule to ban almost all contracts which contained a non-compete agreement.  This rule was challenged in the U.S. District Court of Texas, which issued an injunction preventing the rule from going into effect in the Fall of 2024.  See Ryan, LLC v. FTC, 746 F. Supp. 3d 369 (N.D. Tex. 2024).  The FTC appealed this decision to the U.S. Court of Appeals for the Fifth Circuit, but on September 5, 2025, the FTC withdrew its appeal.  See Ryan, LLC v. FTC, No. 24-10951 (5th Cir. 2025).  In a statement issued the same day, Andrew Ferguson, Chairman of the FTC, indicated that the FTC was shifting its focus to case-by-case enforcement.  Chairman Ferguson stated the FTC would “patrol[] our markets for specific anticompetitive conduct” and “enforce the antitrust laws aggressively against noncompete agreements.” 

What does this mean? Great question. Around the same time as this announcement, in September 2025, the FTC brought an action against Gateway Services, Inc., the largest pet cremation services company in the U.S., challenging Gateway’s use of non-compete agreements.  According to the complaint, Gateway required all new hires—around 1,700 people, regardless of seniority or role—to sign non-competes that barred them from working in the pet cremation industry in the U.S. for one year. The FTC characterized this as anti-competitive conduct in violation of federal law (15 U.S.C. § 45), emphasizing both the blanket application of the restriction and its nationwide scope.

For employers, the message is straightforward: non-competes are not banned by federal law, but they must be narrowly tailored and defensible.  Agreements that apply indiscriminately across the workforce, or that impose sweeping geographic or industry-wide bans, are increasingly vulnerable to regulatory challenge.

Non-Competes in Maryland

Maryland law generally enforces non-compete agreements, as long as they are reasonable in length of time (2 years is often approved by the courts) and in geographic scope (which varies substantially, depending on the scope of the company’s customer base).  Despite this general rule that non-compete agreements are enforceable in Maryland, in 2024, Maryland passed a law that made certain non-compete agreements unlawful.  

Section 3-716 of the Labor and Employment Article of the Maryland Annotated Code declares “null and void” the following “non-competes.”  The first applies to employees earning modest wages: any employee who earns 150% or less of the State minimum wage (i.e., $22.50 or less per hour), may not have a non-compete agreement.  The second applies to employees in the healthcare industry: healthcare workers who provide direct patient care and earn $350,000 or less annually, and veterinary professionals may not have non-compete agreements.  For healthcare workers who earn more than $350,000 annually, non-competes are enforceable but the restrictions must be limited to a 1-year duration and a 10-mile geographic radius.  The prohibition applies prospectively to new agreements, not to agreements already in existence when this law passed.  Importantly, non-solicitation and non-disclosure agreements are specifically excluded from this statutory prohibition and remain as enforceable as they always have been.

For employees not covered by the statutory ban, non-competes still are permitted.  But remember — courts in Maryland apply a reasonableness standard when evaluating restrictive covenants like non-compete agreements.  Under this standard, non-compete agreements are generally upheld if the restrictions they impose are limited in both geographic area and duration to what is reasonably necessary for the protection of the employer’s legitimate business interests without imposing undue hardship on the employee or disregarding public interests.  Courts conduct a case-by-case analysis rather than applying a universal rule.

What are legitimate business interests?

• Trade secrets and confidential information
• Customer or client goodwill and relationships
• Protection of specialized training

Practical Steps Maryland Employers Should Take Now

Think of restrictive covenants as legal tools employers can use to protect business interests, but they must be reasonable and enforceable under State law.  Here are a few critical steps employers should take now to ensure restrictive covenants are used strategically to advance business interests rather than expose a business to unnecessary legal risk. 

1. Audit existing agreements

• Identify which employees fall under statutory bans
• Separate agreements that pre-date the 2024 law from new ones

2. Update provisions in new agreements

• Ensure offers and agreements comply with Maryland law
• Remove unenforceable provisions
• Customize your restrictive covenants for your industry and for the employee’s specific role and duties

3. Consider alternatives

• Non-solicitation clauses
• Confidentiality or non-disclosure agreements

The attorneys at Luchansky Law can help you craft strategic, compliant restrictive covenants tailored to protect your business interests while minimizing legal risk.  I would welcome the opportunity to discuss with you how.  For more information, call me at Luchansky Law 410.522.1020, or email me at ari@luchanskylaw.com.