New Maryland Law Prohibits Non-Compete Agreements for Lower Wage Workers

Daniel L. Morgan

If you’re an employer in Maryland, beginning October 1, 2019, you are prohibited from requiring a low wage worker (defined as someone earning less than $15/hour or less than $31,200/year) to sign a non-compete agreement with your company. Maryland’s law follows a national trend in which a number of other states have either passed or are considering similar legislation. Among those states that have already passed legislation preventing employers from enforcing non-compete agreements with lower paid employees are Illinois, Maine, and New Hampshire.

As a cautionary note, Maryland’s new law does not grandfather existing non-compete agreements with employees whose earnings bring them within the purview of the new law, which means that those agreements will become unenforceable after the law takes effect.

Given the purpose of non-compete agreements, which often are used to protect an employer’s trade secrets, other confidential and proprietary information, and goodwill, and the fact that the new Maryland law only applies to lower wage workers, it is not expected to materially impact many employers.

Importantly, the Maryland law contains a carve-out to the prohibition, which allows an employer to have these lower wage employees sign agreements that block the taking or use of a client list or other proprietary client-related information. The law also does not explicitly prohibit agreements banning the solicitation of a former employer’s customers. However, given the increasingly unfavorable legislative and judicial climate for imposing post-employment restrictions on lower paid workers, Maryland employers would do well to consider on a case-by-case basis whether it makes practical sense to impose a non-solicitation restriction on a worker that otherwise would fall within the protection of the new law.

Despite its scope, this new law should not dissuade a Maryland employer concerned about protecting confidential and proprietary information (such as client lists) from requiring employees with access to such information, including lower wage workers, to enter into agreements to protect that information. Such confidential information agreements should, among other things:

      • state that the information is the employer’s property and must not be used or disclosed by employees for any purpose, other than carrying out the employee’s duties to the employer;
      • make it clear that the restriction on the use or disclosure of the information extends to both hardcopy and electronic forms of the information; and
      • include an explicit requirement that all proprietary information (including copies) within the control of an employee must be returned to the employer at the time the employee’s employment ends.

Also, to buttress the enforceability of such an agreement, we recommend that every employer institute formal precautions to restrict access to the information to only those employees who have a “need to know” and use it.

Beware that this trend of protecting lower wage workers in several areas of their employment—including the push for a national $15/hour minimum wage—will continue. We expect the trend to be most prominent on the state and local levels throughout the country, especially given the existing split houses of Congress.

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