Covenants not to compete (often referred to simply as “noncompetes”) have become ubiquitous in employment agreements, particularly for executives and other mid- to high-ranking individuals. The long standing status quo regarding non-competes in the majority of states—including Maryland—is that they are fully permissible, subject to a case-by-case judicial balancing test that considers the interests of the former employer against the hardships to the employee and the public. However, some states are now changing the state of affairs.
Earlier this year, California enacted a statute which made it the first in the nation to largely prohibit noncompetes in employment contracts. Specifically, California Business & Professions Code § 16600 provides that “[E]very contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” In layman’s terms, even if an employee signs a contract with a noncompete, or covenant not to solicit the employer’s clients, the employer is still prohibited from enforcing this otherwise voluntary agreement (subject to certain exceptions outlined in sections 16601 through 16607. Save for the narrowly defined exceptions, California’s law effectively invalidates most noncompetes contained in an employment agreement.
Closely following suit, in September of this year, Massachusetts Governor Deval Patrick came out in support of eliminating the enforceability of non-competes in his state, regardless of covenant’s duration or geographic scope, to Gov. Patrick, non-competes repress innovation and encourage entrepreneurs to flee Massachusetts for greener pastures.
Are California and Massachusetts on to something? If other states follow suit, will it result in stimulating the economy and fostering growth and increased mobility? It is difficult to say. The actual impact of these new laws will only be revealed over time.
While noncompetes remain enforceable in Maryland, current law provides that they must be reasonable in scope of activity, time, and geography. The requirement of these factors limits the damage that noncompetes can inflict on an individual’s career and entrepreneurial ambitions. While Maryland’s approach to noncompetes isn’t without it’s flaws, it certainly isn’t clear at this point that the extreme positions staked out by California and Massachusetts are perfect either.
Maryland employers or employees who have additional questions about non-competes or any other issues arising in the workplace are welcome to contact attorney Judd G. Millman. Mr. Millman is licensed to practice law in both Maryland and Texas, and he focuses exclusively on the area of employment law. He regularly counsels both employees and employers on the myriad of legal issues which arise in the workplace. He can be reached directly at (410) 522-1020 or at judd@luchanskylaw.com.