Taylor Legal Blog

Understanding the Changing Legal Landscape for Noncompete Agreements under Maryland Law

Posted by Katherine L. Taylor, Attorney and CPA, Chief Problem SolverOct 31, 20240 Comments

Introduction

Historically, noncompete agreements have been a common tool for businesses to protect their trade secrets, client lists, and to retain key employees. However, using noncompete agreements has also raised concerns about restricting workers' mobility and opportunities. In April 2023, the Federal Trade Commission (“FTC”) found that noncompete provisions are an unfair method of competition and passed a rule prohibiting employee noncompete agreements, with limited exceptions.

Ryan LLC, a Texas tax services firm, immediately challenged the rule. In August 2024, in Ryan LLC v. FTC, 2024 U.S. Dist. LEXIS 148488, the U.S. District Court for the Northern District of Texas struck down the FTC rule, reaffirming that noncompete agreements are primarily governed by state law. This blog discusses the effect of the Ryan decision and what businesses need to know about noncompete agreements in Maryland.

Implications of Ryan LLC v. FTC

The Ryan decision has several important implications for the future of noncompete agreements and the FTC's regulatory powers. The ruling affirmed that each state can maintain its approach to these agreements, enabling employers to continue using noncompete agreements, within the bounds of their state law, to protect assets like intellectual property and client relationships.

Maryland's Approach to Noncompete Agreements

Some noncompete agreements are legal in Maryland; however, Maryland law contains restrictions designed to prevent overly broad or unfair clauses that limit the ability of (1) lower-paid employees and (2) healthcare and veterinary care employees to work and earn a livelihood.

Key Aspects of Maryland's Noncompete Statutes

Ban on Noncompetes for Low-Wage Workers: Maryland prohibits noncompete agreements for employees earning less than 150% of the state minimum wage. This law ensures that lower-wage workers are not unfairly restricted in their employment options.

Healthcare and Veterinary Care Providers: Maryland law also prohibits noncompete agreements for certain licensed healthcare and veterinary care providers.

Key Aspects of Maryland Case Law Interpreting Noncompetes

Under Maryland case law, covenants not to compete are enforceable as long as they meet certain criteria:

  • Reasonableness and Enforceability: For noncompete agreements to be enforceable in Maryland, they must be considered “reasonable” in terms of:

    • Duration: A noncompete must not last longer than necessary to protect the employer's legitimate interests.

    • Geographic Scope: The restricted area must be limited to regions where the employer operates or has legitimate business concerns.

    • Nature of the Restriction: The scope of restricted activities should be directly tied to the employee's previous role and the employer's business.

Other Ways to Legally Protect Businesses

Protection of Trade Secrets: Maryland law allows noncompete agreements to protect an employer's trade secrets, confidential information, or goodwill. However, the agreement must be narrowly tailored to address these concerns without unnecessarily limiting the employee's ability to find other work.

Nonsolicitation Clauses: In addition to noncompete agreements, Maryland law permits nonsolicitation clauses, which prevent former employees from poaching clients or employees from their previous employer. These clauses are generally easier to enforce, as they are seen as a more reasonable means of protecting a business's interests without directly restricting employment opportunities.

What Employers Need to Know

Employers in Maryland should ensure that any noncompete agreements they draft are:

  • Compliant with Statutes: Ensure that noncompete clauses do not apply to employees earning less than the legal threshold and that restrictions on noncompetes for healthcare and veterinary care workers are considered.

  • Tailored: The terms should be narrow and specific to protect legitimate business interests.

  • Reasonable: Consider the time, geographic scope, and scope of restriction when drafting agreements, as overly broad noncompetes are unlikely to be enforced by Maryland courts.

Employers and businesses may use other types of agreements, such as nonsolicitation and nondisclosure agreements, to protect trade secrets and client lists, and to guard against the poaching of employees by a departing employee.

Conclusion

As the legal landscape around noncompete agreements continues to evolve, employers need to stay informed about their rights and responsibilities. Taylor Legal can help you understand Maryland's noncompete law so that you can protect your business assets.