Employer-imposed restrictive covenants can be enforced in Maryland even if the employer terminates the employee for lack of business, financial conditions, or most any other reason. However, this can only occur if the scope of the non-compete and/or non-solicitation provisions are reasonable.
So, the question is: When are restrictive covenants unreasonable and, therefore, unenforceable under Maryland law?
A recent unpublished case from the Maryland Court of Special Appeals provides some guidance. In A.C.L. Computers & Software, Inc. v. Braxton Grant Technologies, Inc., the employer sued two former employees it had laid off for breaching the terms of a non-compete and non-solicitation agreement. The Court explained the test for determining whether or not a restrictive covenant is reasonable is as follows:
[W]e look at whether the restrictive covenant is reasonable in scope, both in terms of geography and duration, in the context of the employer’s business. … If the covenant satisfies those two prongs, then we consider four more factors: [1] whether the person sought to be enjoined is an unskilled worker whose services are not unique; [2] whether the covenant is necessary to prevent the solicitation of customers or the use of trade secrets, assigned routes, or private customer lists; [3] whether there is any exploitation of personal contacts between the employee and customer; and, [4] whether enforcement of the clause would impose an undue hardship on the employee or disregard the interests of the public.
The Court ruled that the non-compete and non-solicitation provisions were not reasonable in scope, finding:
The non-competition clause encompassed all ACL clients, customers, and accounts with whom the employee had direct contact or provided any services during the preceding two years. …
The non-solicitation clause applied broadly, to nearly any person or entity who had any sort of connection to ACL’s business, for a period of one year.
The Court then went even further and found that none of the four factors were even met. The Court specifically held that the two employees were sales reps who provided no special services and did not render unique services. The Court also determined that the covenants were not necessary to prevent solicitation of customers because most of the sales were done by public bidding, which also meant that there was no exploitation of personal contacts.
The attorneys at Lebau & Neuworth regularly represent employees in litigation and negotiations involving restrictive covenants; in fact, we are fierce advocates for these employees. To learn how we can help you, please contact us at (410) 296-3030 or lebauneuworth.com/contact-us.
