Maryland Bans Non-Compete Agreements for Low Wage Workers

Miles & Stockbridge P.C.

In 2016, President Obama released a “Call to Action” encouraging state legislatures to take a hard look at non-compete reform. The “Call to Action” urged states to ban restrictive covenants that impose unnecessary restrictions on the mobility of specific categories of workers, including lower-wage earners.

Recently, Maryland joined a growing number of states that have answered the Obama Administration’s call and taken steps to limit the enforceability of non-compete agreements. Since 2016, the Maryland legislature has twice introduced but failed to pass measures limiting restrictive covenants. Early this year, however, the Maryland Senate introduced SB 328, which passed both the Senate and House and was enacted on May 25, 2019 without the Governor’s signature. The law prohibits the use of noncompete agreements for employees who earn equal to or less than $15.00 per hour or $31,200 annually. Specifically, employers are prohibited from enforcing a non-compete agreement or conflict of interest provision that restricts a covered employee’s ability to enter into employment with a new employer or become self-employed. Such agreements are “null and void” as against the public policy of the state. Significantly, the law is not limited to post-employment activities, suggesting that an employer may not be able to prevent a current employee covered by the law from contemporaneously working for a competitor (although there may be other grounds an employer could invoke to prevent a current employee from working for a competitor such as the employee’s duty of loyalty). The law goes in to effect on October 1, 2019.

Importantly, the law contains a carve out which allows an employer to protect from disclosure proprietary information obtained by low wage workers. The law specifically exempts from coverage agreements regarding the taking or use of a client list, or other proprietary client information. As noted in the Bill’s Fiscal and Policy Note, this aligns with Maryland’s general rule that restrictive covenants may be applied and enforced only against those employees who provide unique services, or to prevent the future misuse of trade secrets, routes or lists of clients, or the solicitation of customers.

The law does not provide for a private right of action, nor does it impose fines or penalties on employers attempting to restrict the competition of their low wage workers. Instead, the law gives employees a defense against an attempt by an employer to enforce a non-compete agreement. Notably, the law is not specifically limited to agreements made after the effective date. As a result, any current noncompete agreement with a covered employee may become unenforceable in Maryland when the law goes into effect on October 1, 2019.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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