In the last several years, Maryland, Virginia, and D.C. have passed laws restricting employers’ use of non-compete agreements in employment contracts. During that same period of time, courts have trended away from enforcing non-compete restrictions unless they are reasonably written to protect a company’s business interests.
Effective October 1, 2019, Maryland’s Non-Compete and Conflict of Interest Clause Act prohibits non-compete clauses for “low-wage” employees, employees who earn an amount equal to or less than $31,200 annually or $15.00 per hour. The law does not apply to agreements regarding the taking or use of a client list or other proprietary client-related information; therefore, non-disclosure agreements protecting employer proprietary client information are still enforceable against these low-wage workers.
Effective July 1, 2020, Virginia enacted a law banning non-compete clauses for “low-wage” workers, workers whose average weekly earnings during the previous 52 weeks “are less than the average weekly wage of the Commonwealth” as calculated pursuant to applicable Virginia laws. The average weekly wage fluctuates and could be as low as $1,204 per week, approximately $62,600 annually. Under the Virginia Act, independent contractors making less than the “median hourly wage” are also considered “low wage employees.”
In the District of Columbia, the D.C. Council enacted the D.C. Ban on Non-Compete Agreements Amendment Act of 2020 which invalidates non-competes entered into on or after October 1, 2022, the Act’s current applicability date. Non-competes entered into prior to the applicability date continue to be governed by D.C. common law.
With only a few exceptions, D.C. employers may no longer prohibit D.C. employees from simultaneously or subsequently being employed or engaged by a competitor or other third party. The Act appears to cover both common law employees and individuals engaged on an independent contractor basis in D.C. It does not prohibit a non-compete entered into by the seller upon a sale of a business, but whether any equity holder would fall within this exception is unclear.
While D.C. employers may continue to use confidentiality agreements to protect confidential, proprietary, or sensitive information, client lists, customer lists, and trade secrets, the Act is silent regarding the use of non-solicitation provisions restricting the solicitation of employees, customers, and/or clients. Interpretation by the courts may determine the applicability of the Act to such non-solicitation provisions.
Based on trends we have seen over the past several years, courts are shifting away from enforcing broad non-compete restrictions; they are only enforcing non-compete agreements that are narrowly crafted to protect a company’s reasonable business interests, such as protected client relationships and confidential information. In many instances, courts have chosen not to enforce non-compete agreements that broadly prohibit an employee from working for a competitor in any capacity. Typically, courts only enforce non-compete agreements that are narrow and reasonable in scope: agreements that prohibit employees from working for competitors in the same or similar roles that they held with their former employers and where the nature of their work with new employers will likely include either contact with customers of the former employer or use of the former employer’s confidential information. Courts look at each non-compete on a case-by-case basis, and what might be enforceable in one instance may not be enforceable in another. While there is still an opportunity for employers to establish enforceable non-compete agreements, these agreements must be crafted on a case-by-case basis for particular employees or groups of employees, and they must be narrowly tailored to protect the company’s legitimate business interests.
Employers who are located in MD, VA, or D.C., or who have employees in these jurisdictions, should plan to review and update their non-compete, non-solicitation, and employment agreements to ensure that they comply with the most recent non-compete laws.
For questions about this article, or any other employment related matter, please contact an attorney in our Labor & Employment Practice Group.