Employment Non-Competes 2024 Update

Employment Non-Competes 2024 Update
Posted on January 14, 2025 in Agreements & Negotiations, Non-compete Agreements

In examining the legal developments surrounding employment non-compete agreements, the year 2024 began with considerable momentum in efforts to regulate them at the federal level. However, this initial energy faded into insignificance as the year progressed, while substantial restrictions emerged under state law. To better understand the landscape, let's define some key terms and delve deeper into the specifics.

A non-compete agreement, also known as a covenant not to compete, is a commitment typically found in business sales, partnerships, or employment contracts. It prohibits an individual from engaging in similar business activities within a specified timeframe and geographic area relative to the buyer, partner, or employer. These non-competition covenants are recognized as valid mechanisms to safeguard business goodwill during a company's sale. 

In employment scenarios, however, requirements that restrict an employee from pursuing certain types of work after leaving their position are often viewed as restraints of trade and are generally disfavored. Courts tend to enforce such agreements only for the duration of the employment relationship, and any restrictions that extend beyond that must be reasonable in terms of scope, duration, and geographic reach. 

This can also be referred to as a noncompetition agreement, non-compete covenant, restrictive covenant, covenant in restraint of trade, promise not to compete, contract not to compete," to quote a definition from Bryan Garner's Black Law Dictionary. How do non-competes enter into law developments since the beginning of this year?

At The Federal Level – Drama, But No Climax 

With great fanfare on April 24, 2024, the Federal Trade Commission issued a final ruling "to promote competition by banning non-competes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation." The Rule was enjoyed less than three months later by a federal court in Texas in a lawsuit filed by the U.S. Chamber of Commerce, which described the court result as a "big win against government micromanagement of business decisions" and one that "sets a dangerous precedent where the government knows better than the markets."

The drama ended on December 10, 2024, when the incoming Trump administration announced the intended nomination of FTC member Andrew Ferguson as the Commission's Chair. Ferguson had vigorously dissented against the FTC's proposed non-compete ban. Therefore, the federal executive branch will not take any action to limit the application of restrictive covenants in employment contracts for the time being, and action at the congressional level is even less likely.

At The State Level – Some Progress

Maryland first enacted limitations on non-competes in 2019, when the state passed a complete ban on non-competes for those who earned less than $15/hr or $31,200 annually (Maryland Labor & Empl. Code § 3-716 (20190). In 2024, Maryland Labor & Empl. Code Ann. § 3-716 was amended to provide some limitations on using employment-related restrictive covenants. The key takeaways from the amendments are as follows:

1. Non-competes Banned For Workers Making Less Than $22.50/hr - Labor & Empl. Code Ann. § 3-716(a)(1)(i)(1).

Maryland's prohibition on non-competes continues for workers earning less than 150% of the state's minimum wage, or $22.50, based on the now $15/hr State minimum wage. The statutory provision no longer requires an annual earning requirement. The Maryland minimum wage is not set to increase in 2025.

2. Non-competes Banned For Veterinarians and Technicians - Labor & Empl. Code Ann. § 3-716(a)(3).

Effective June 1, 2024, Maryland enacted a complete ban on all non-competes for veterinarians and vet techs licensed under Title 2, Subtitle 3 of the Agriculture Article.

 3. Starting in July 2025, Non-competes will be Banned For Certain Health Care Professionals

Certain healthcare professionals will soon enjoy enhanced protections against non-compete agreements. The recent amendment to Section 3-716 introduces restrictions on non-compete clauses for licensed workers under the Maryland Health Occupations Article, including physicians, dentists, nurses, mental health counselors, and others in similar roles. These new restrictions will take effect on July 1, 2025.

The amendments are two-tiered in approach:

•Professionals Making $350,000 or Less

A non-compete is unenforceable for healthcare professionals who provide direct patient care and earn $350,000 or less. Labor & Empl. Code § 3-716(a)(i)(1)(2)(b).

Professionals Making More Than $350,000

Healthcare professionals making more than $350,000 can be subjected to non-compete agreements so long as the professional provides direct patient care and the restriction is either more than one year in duration or 10 miles in geographic scope from the professional's principal place of employment. Labor & Empl. Code § 3-716(b). The terms "principal place of employment" and "direct patient care" remain undefined in the statute, and no private cause of action is available. As a result, the responsibility for interpreting and enforcing these terms falls entirely on the courts. Importantly, employers still have the option to establish non-solicitation and confidentiality agreements for employees who cannot be subjected to non-compete clauses. However, it is essential to recognize that courts may nullify excessively broad non-solicitation or confidentiality agreements that essentially operate as non-compete agreements.

Court Rulings

There were no significant non-compete case law developments in 2024, but two cases are worth noting for their discussion regarding the "blue-penciling" of restrictive covenants.

The first case of note is FTI Consulting, Inc. v. Orszag, 2024 U.S. Dist. LEXIS 220876 (D. Md. December 5, 2024), in which an employer sued their former senior executive, an economist, and a final consultant for breach of a non-compete and a non-solicitation provision. To say that there was acrimony between the parties during and after the employment relationship would be an understatement. The non-compete restricted the executive from competing in any consulting role in numerous countries, including the U.S., the U.K., continental Europe, Israel, Chile, China, Singapore, Argentina, and any country where the employer had an office. 

The Court, viewing this restriction as potentially too broad, asked each party to submit "blue-penciling" to limit the scope of the noncompete. The employer gave a proposal that limited the noncompete to the U.S. and U.K., which was specified only for economic consulting. The Court approved the proposal, which satisfied the limited circumstances when blue-penciling is allowed. 

Quoting from an earlier case, the Court stated: "If a restrictive covenant is unnecessarily broad, a court may blue-pencil or excise language to reduce the covenant's reach to reasonable limits. A court may not, however, rearrange or supplement the language of the restrictive covenant to precipitate a properly tailored revision. A court can only blue-pencil a restrictive covenant if the offending provision is neatly severable. A court may not excise the dominant language or words from a covenant part of a single indivisible promise. Nor can a court supplement, rearrange, or otherwise rewrite the language of the restrictive covenant."

The second case is Blue Ridge Risk Partners, LLC v. Willem, 2024 U.S. Dist. LEXIS 48921 (D. Md. March 19, 2024), which involved an employer trying to enforce its restrictive covenants against a departed executive who went to work for a competitor where much of her book of business followed. Specifically, the Court ruled that prohibitions against "passively accepting" business from all its customers and prospective customers, without consideration of whether the executive did business with them, were overly broad and, therefore, unenforceable." The Court refused to blue-line the covenants as suggested by the employer to more precisely define a client and not to include prospective clients, stating: "Blue Ridge's proposal removes 65% of the words within the provision and rewrites the clause, as opposed to merely removing a severable portion. If the Court were to permit this form of blue-penciling, employers would be disincentivized from negotiating fair and reasonable restrictive covenants initially.

Looking Ahead

The FTC's ruling in April 2024 can be seen as part of a larger movement to enhance worker mobility at both the federal and state levels. The federal government has signaled its intention to scrutinize and contest worker rights restrictions, aligning with the current administration's dedication to enforcing antitrust laws in labor markets. However, it's important to note that changes in policy direction could occur with upcoming presidential transitions in Washington.

Lebau & Neuworth attorneys regularly represent workers in non-compete negotiations and disputes. Contact us should you need assistance. 



















 

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