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Maryland Court Refuses To Enforce Noncompete

Published by on January 19, 2011

In Ecology Services, Inc. v. Clym Environmental Services, LLC, the Court of Special Appeals of Maryland held that certain covenants not to compete were unenforceable as a matter of law and affirmed the circuit court’s grant of summary judgment for the appellees.  More after the break. Ecology Services, a waste management company, employed a group […]

In Ecology Services, Inc. v. Clym Environmental Services, LLC, the Court of Special Appeals of Maryland held that certain covenants not to compete were unenforceable as a matter of law and affirmed the circuit court’s grant of summary judgment for the appellees.  More after the break.

Ecology Services, a waste management company, employed a group of employees who had each executed covenants not to compete during their employment.  The covenants prohibited the employees from engaging in any business similar to Ecology Services or working for a competitor within a 100 mile radius and for a period of one year.  Upon expiration of two service contracts between Ecology Services and the National Institutes of Health (“NIH”), some of the employees working under the contracts began working for Clym, a competitor of Ecology Services who had now taken over the NIH contracts.  Ecology Services filed suit against the employees and Clym, alleging breach of the covenants not to compete.  The circuit court granted summary judgment for Clym and the employees, and Ecology Services filed an appeal.

The appellate court began its analysis by stating that under Maryland law, covenants not to compete may generally only be enforced against employees who provide unique services or to prevent misuse of trade secrets, client lists, or solicitation of customers.  Further, restrictions in covenants not to compete must be “confined within limits which are no wider as to area and duration than are reasonably necessary for the protection of the business of the employer and do not impose undue hardship on the employee or disregard the interests of the public.”  The court stated that when covenants not to compete are reasonable on their face as to both time and space, the factors for determining enforceability are:

whether the person sought to be enjoined is an unskilled worker whose services are not unique; whether the covenant is necessary to prevent the solicitation of customers or the use of trade secrets, assigned routes, or private customer lists; whether there is any exploitation of personal contacts between the employee and customer; and, whether enforcement of the clause would impose an undue hardship on the employee or disregard the interests of the public.

Since the parties did not dispute the reasonableness of the covenants’ time and space restrictions, the court analyzed the covenants’ enforceability under the factors specified.  The court noted that here there was no evidence that Ecology Services benefited from the personal contacts between the employees and NIH with respect to the service contracts, and the fact that the contracts were awarded through a competitive bidding process reinforced that conclusion.  The court also held that there was no evidence that the employees had access to trade secrets during their employment with Ecology Services.  With respect to the employees’ skills, the court stated that even though their positions required education and training, these job qualifications were insufficient to create an issue of fact that their skills were unique to the extent that it would be difficult to replace them.  The court also found that enforcement of the covenants would impose undue hardship on the employees based on the length of time they worked at NIH, and that the other employment opportunities offered to them by Ecology Services were not similar in function or pay as their previous employment.  Finally, the court noted that enforcement of the covenants would reduce the number of eligible employees for government contracts.  Finding that the factors weighed heavily against enforceability, the court affirmed summary judgment for Clym and the employees.

The court’s opinion can be found here.  (hat tip to Maryland Employment Law blog)

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