The Future of Non-Competition Clauses in Maryland

Non-competition clauses in employment agreements are generally enforceable in Maryland. However, a recent rise in workers’ rights and anti-monopolist sentiments might find Maryland following California’s lead in significantly limiting the power of these clauses.

Ultimately, non-compete clauses are designed to protect a company’s trade secrets, client relationships, and competitive advantage. However, by limiting a professionals’ ability to use their skills in their respective fields over a period of time or within a certain location, non-compete clauses inherently stimy new business development and innovation.

Maryland currently follows a common law approach to non-compete agreements, where courts assess the reasonableness of such clauses based on factors like duration, geographic scope, and the protection of legitimate business interests. While non-competes are generally enforceable if they meet certain criteria, concerns have been raised about their potential to stifle innovation and limit employee mobility.

There are some exceptions for non-compete clauses. Md. Code, Lab. & Empl. § 3-716, for example, largely prohibits non-compete clauses where an employee earns equal or less than 150% of the minimum wage. Moreover, the Maryland Appellate Court has held that non-compete clauses “should be no greater in scope than is necessary to protect the business or goodwill of the employer.” See, e.g., Labor Ready, Inc. v. Abis, 137 Md. App. 116 (2001).

In California, however, non-compete clauses in employment agreements are almost entirely unenforceable. Section 16600 of the California Business and Professions Code, which was just tightened to prohibit post-employment non-compete clauses, states that “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” The purpose of this statute is clear: the economic rights of the worker are protected more than those of the business.

Over the past few years, there have been efforts to reform Maryland’s laws regarding non-compete clauses. Proposed legislation has sought to impose limitations on the use of non-competes, such as prohibiting their enforcement against low-wage workers or imposing specific requirements for enforceability. These proposals reflect growing awareness of the potential negative impact of overly restrictive non-compete agreements on workers, specialists and the economy. An example is SB1182 and HB1388, which passed the Maryland General Assembly during the 2024 Legislative Session. This bill holds non-compete provisions for certain veterinary and health care professionals in Maryland as against public policy.

The trajectory of non-compete reform in Maryland remains uncertain, but the passage of this bill, as well as the trajectory of states such as Califiornia, indicates that Maryland might be headed for more restrictions against non-compete provisions in employment agreements.

The debate over the legality of non-compete clauses in contracts in Maryland is poised for a potential shift in the near future. With legislative proposals, growing public awareness, and economic considerations driving momentum for reform, businesses and workers alike may soon face changes to the legal framework governing non-competes. Whether these changes will strike a balance between protecting business interests and promoting worker rights and economic growth remains to be seen, but the conversation surrounding non-compete clauses in Maryland is undeniably evolving.