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Maryland Bans Non-Competes for Certain Employees

Published by and on July 17, 2019

Effective October 1, 2019, Maryland employers are prohibited from entering into non-compete agreements with employees who earn equal to or less than $15.00 per hour or $31,200 annually.

On May 25, 2019, Maryland enacted Senate Bill 328 (“SB 328”), prohibiting employers from entering into non-compete agreements with employees who earn equal to or less than $15.00 per hour or $31,000 annually. The bill automatically became law when Maryland Governor Larry Hogan did not use executive powers to veto the bill. SB 328 will take effect October 1, 2019.

Under the new law, any “non-compete or conflict of interest provision in an employment contract or similar document or agreement that restricts the ability of an employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade shall be null and void as being against the public policy of the State.” (emphasis added). The new Maryland law applies whether or not the employer or employee entered into the employment agreement in Maryland.

SB 328 does not prohibit employers from entering into non-compete agreements with employees earning more than the threshold income amount. Further, SB 328 does not prohibit employers from entering into agreements with employees with respect to “the taking or use of a client list or other proprietary client-related information.” Finally, SB 328 does not address whether the prohibition on non-competes or similarly restrictive agreements includes less restrictive covenants, such as non-solicitation agreements.

Welter Insight

Maryland employers that use non-compete agreements should take time to review policies regarding low-wage employees and restrictive covenants before October 1, 2019, for compliance under the new law.

While SB 328 sets a base-line prohibition on non-competes for certain employees, Maryland employers should also review current non-compete agreements for enforceability under the law. Regardless of income, non-compete agreements must be reasonable and no more restrictive in scope and duration than is reasonably necessary to protect an employer’s legitimate business interest.

Multi-state employers should be particularly cautious in using non-compete agreements, as a growing number of states, including California, Illinois, Massachusetts, Oregon, and Washington State, have enacted laws restricting employers’ use of non-compete agreements.

Because state legislative and judicial enforcement of non-compete agreements varies widely, employers (especially multi-state employers) should seek counsel to ensure compliance under state and local laws. Employers cannot rely on a one-size-fits-all non-compete agreement to apply and be enforceable against employees located in multiple states.

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