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Maryland Enacts a Statute Prohibiting Non-Competes for Lower Wage Employees

On May 28, 2019, the Maryland Governor permitted (without signature) the Noncompete and Conflict of Interest Clauses Act (the Act) to become law.

The Act takes effect on October 1, 2019 and prohibits employers from using a non-compete or conflict of interest provision “that restricts the ability of an employee [who earns equal to or less than $15 per hour or $31,200 annually] to enter into employment with a new employer or to become self-employed in the same or similar business or trade.” The Act declares such agreements or provisions null and void, and against the public policy of the state of Maryland. While the Act generally prohibits non-competes and conflict of interest provisions for lower-wage employees, it expressly permits restrictions that prohibit “taking or us[ing] . . .  a client list or other proprietary client-related information.”

Notably, a number of state legislatures have recently focused on the use of non-competes for lower-wage employees. These include Virginia (proposed), Maine (enacted), Massachusetts (enacted), Connecticut (proposed), California (enacted), Illinois (enacted), New Hampshire (proposed), and New Jersey (proposed). Courts throughout the country have also addressed the question of whether to enforce non-competes against lower-wage employees. See, e.g., Elite Cleaning Co., Inc. v. Walter Capel, et al., No. Civ. A. 690-N, 2006 WL 1565161, *9 (Del. June 2, 2006) (finding non-compete unenforceable where an at will employee “did not have access to any sensitive information, received no training, and received compensation (without benefits) only slightly above minimum wage” because enforcing such agreement would “discourage [employee] from seeking better employment and greater security for his family elsewhere.”); Nat’l Employment Serv. Corp. v. Olsten Staffing Serv. Inc., 145 N.H. 158, 761 A.2d 401, 405 (N.H. 2000) (finding a non-compete unenforceable against light industrial labor employees who had no access to proprietary information and who were not in a position to appropriate goodwill); Accent Strip, Inc. v. Douglas Taylor, 204 A.D.2d 1054, 1055 (N.Y. App. Div. 1994) (holding employees position was “not highly compensated and require[d] no unique skill or specialized training” and employee “was not shown to have knowledge of trade secrets or to have threatened disclosure of such secrets to his new employer.”)

In 2008, the Court of Special Appeals of Maryland upheld the trial court’s decision that plaintiff employees were “clearly low level employees not utilizing skills against whom covenants not to compete could be enforced.” Ecology Servs., Inc. v. Clym Envtl. Servs., LLC, 952 A.2d 999, 1004-05 (Md. Ct. Spec. App. 2008). In these cases, courts tend to focus on the employee’s education, level, experience, training, access to employer’s trade secrets or confidential information, and compensation. Regardless of the reasoning, courts are continuing to find ways to hold that such non-compete agreements are unenforceable.

For a slightly different variation on the theme, in Butler v. Jimmy John’s Franchise, LLC, 331 F. Supp. 3d 786 (S.D. Ill. 2018), a former employee successfully alleged an antitrust injury and stated a claim under the Sherman Act in a class action where the food chain prohibited hiring an employee of another affiliate or franchisee. Consistent with the issues in Butler, Maryland, Washington DC, and twelve other states reached settlements this year with Dunkin’ Donuts, Arby’s, Five Guys Burgers and Fries, and Little Caesars to stop using “no poach” provisions in non-compete agreements that prohibit employees from moving to another franchise within the same chain, and to rescind and notify employees of the unenforceability of such provisions. Several other companies remain under investigation by the states’ attorney generals over concerns that these agreements adversely impact lower-wage workers by limiting their ability to get better paid jobs.

Actions To Be Taken Now

In anticipation of the Act’s effective date, employers should evaluate whether any of its Maryland based employees that fall within the defined wage range are subject to a non-compete or conflict of interest provision, and ensure that these prohibited provisions are not included in the agreements or other documentation for this category of wage earners going forward. Employers should also confirm, however, that sufficient  measures are in place to protect its proprietary information and trade secrets with respect to all employees.

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