A restrictive covenant, such as pre- or post-employment non-compete agreements, are clauses utilized by organizations in which one party (usually an employee) agrees to refrain from starting a business engaged in a similar service or profession as another party (usually an employer). Typically, the non-compete agreement is for a specified period of time and is entered into as a precondition of employee or at the conclusion of a business relationship. The specified period of time in which a party agrees not to compete is evaluated under a “reasonable duration” standard and will not be enforceable if the agreement is found to have exceeded this limitation. This evaluation will depend on the particular facts of a case. In addition to limitations imposed on the time duration, a non-compete agreement is usually geographically limited and should not be any broader in scope than reasonably necessary to protect the business’s interests.
A non-compete agreement may be used when dealing with intellectual property rights, product or process development, sales, marketing, engineering, design ideas and other business practices.
Another type of restrictive covenant is a non-solicitation agreement in which one party agrees to refrain from soliciting the customers or clients of another party for a direct benefit or for the benefit of a competitor. Like non-compete agreements, these types of contracts are found most often in employee/employer relationships.
The enforcement of non-compete and non-solicitation clauses are fact specific and depend on a multitude of factors. In Maryland, a non-compete clause will be upheld if:
- There is adequate consideration (offer of employment or continued employment is sufficient)
- The limits of the agreement are reasonably necessary for the protection of the business or employer
- They do not impose undue hardship on the employee
- They are not against the public interest
(Becker v. Bailey, 268 Md. 93 (1973)
Maryland courts will also consider the following factors in determining whether the agreement is enforceable:
- Uniqueness of the employee’s skills
- Whether the employee is exploiting close personal contacts with the employer’s clients
- They do not impose undue hardship on the employee
- Whether the non-compete is necessary to protect:
- Established customer relationships;
- Trade secrets;
- Sales or delivery routes; or
- Customer or client list
(Budget Rent A Car of Wash. v. Raab 268 Md. 478 (1973)
A confidentiality agreement, or non-disclosure agreement, is an agreement in which one party agrees not to disclose proprietary or confidential information of another party. Generally, confidentiality agreements focus on information that is not readily available to the public such as customer lists, trade secrets, marketing processes or procedures and business financial information.
Confidentiality agreements will likely be upheld in Maryland unless the alleged violator of the agreement can show the disclosed confidential information was learned or discovered from an independent third party. Unlike non-compete and non-solicitation clauses, confidentiality agreements are not bound by reasonable duration or geographical limitations.
Whether you are an employer looking to protect your business interests, a party to a business endeavor or an employee faced with a restrictive covenant, the Law Office of Rosano, P.C. can help to ensure any agreements containing restrictive covenants entered into are in full accordance with state and federal laws, safeguard your interests and provide thorough counsel on all related considerations. For a free consultation on how a non-compete agreement or other restrictive covenant may impact you or your business, call or contact our office today.
