Nearly four months ago, President Biden issued an executive order in which he urged the Federal Trade Commission to explore enacting rules to curtail the use of non-competes and other agreements that impede worker mobility. In the days and weeks that followed, there were myriad articles and blog posts published by employment lawyers (present company included), constitutional scholars, and HR gurus examining the legality of the federal government regulating employee/employer contracts and what effect the promulgation of a regulation severely limiting or even banning non-competition agreements would have on the business world.
Today, nearly four months later, the FTC has not taken any action, and there is virtually no “buzz” about the issue. It is possible that the Biden Administration has been distracted by other more pressing issues, such as Afghanistan, a bogged-down supply chain, efforts to pass infrastructure and spending bills, or curbing parental interaction with school boards. It is also possible, and one can only hope, that cooler heads have prevailed, recognizing that, as discussed in one of our previous posts, (1) many states were already on their way toward either restricting the use of non-competes or banning them altogether to protect vulnerable employees who lack the bargaining power to resist or refuse them or (2) that a federal regulation like the one urged by the President would face a strong constitutional challenge.
For now, the use and enforceability of non-competes are still governed by state law. In Maryland, this means that, preferably, employers should make sure that non-competes are signed before employment begins. If an employer wants an employee to sign an agreement while already employed, the agreement should specifically identify the consideration the employee is getting in exchange for signing the agreement. In Maryland (though not in some other states), this can be something as basic as “in consideration for continued employment.” In Maryland, non-competes signed by employees earning less than $31,200 a year or $15.00 an hour are unenforceable.
Employers also should be careful not to overreach with regard to the geographical scope of the non-compete. Courts will balance the employer’s legitimate interest in protecting against an employee trying to capitalize on relationships developed with the employer’s customers during his or her employment against placing an overly burdensome restriction on the employee’s ability to work. Courts also will make sure that any restriction is limited to a reasonable time period. Maryland courts generally enforce two-year restrictions but rarely have enforced three-year restrictions. Non-competes also should not restrict an employee from working for a former or potential future competitor of the employer.
It remains to be seen when, or even if, the FTC will attempt to implement President Biden’s executive order. In the meantime, Luchansky Law’s attorneys will be monitoring developments closely and are available to explain how existing state laws and potentially any new regulations affect your company’s non-compete agreements. We can be reached at (410) 522-1020 or at www.employmentattorneymd.com.