Spotlight on the Maryland General Assembly: Bills that propose outlawing noncompete agreements as a matter of public policy may not bear out the promise of their mandate.Posted by on

Bills currently pending before the Maryland General Assembly propose to outlaw noncompete agreements.  While the concept appears significant, the impact will be limited even if they pass both houses and are signed into law.

House Bill (HB) 38 was introduced by Delegate Al Carr (D-18) and passed the House with amendmentson February 19, 2019. It proposes to amend the Labor and Employment Code to provide that

a noncompete or conflict of interest provision in an employment contract or a similar document or agreement that restricts the ability of an employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade shall be null and void as being against the public policy of the State.

While this may appear to be a sweeping public policy statement for the State of Maryland,[i]the reach of the proposed statute likely will be severely limited. Specifically, the proposed change applies only to employment contracts or agreements for an employee who earns $15 or less per hour, or $31,200 annually.  However, the Assembly also is consideringHB 166 this session, which proposes to gradually implement a $15 per hour minimum wage as soon as 2023 for certain employers.[ii]And Montgomery County already has implemented a $15 minimum wage by as soon as 2021 for employers with more than 50 employees. Therefore, even if HB 38 is successful, it will have a short-term, limited impact because it only protects employees who make less than $15 per hour, which in a few years could be a significantly reduced pool of employees.

Moreover, the proposed legislation lacks any provisions to enforce the change in public policy that it proposes. If it passes, however, the statutory language would present an interesting vehicle for the Court of Appeals to reconsider the enforceability of a previously valid noncompete agreement in light of the General Assembly’s declaration of the State’s public policy.

HB 38, in addition to limiting certain non-compete agreements, also includes an amendment that expressly excludes from its coverage – and thus implicitly allows – employment contracts or agreements that prohibit “the taking or use of a client list or other proprietary client-related information.” Because non-disclosure agreements are already lawful in Maryland, and this bill restricts only non-competition agreements, it is mystifying why the General Assembly would add this provision to this bill, opening the door for employers to impose non-disclosure agreements on their lowest paid employees.

HB 38 was cross filed as Senate Bill (SB) 328, whichis identical to the original House bill, as of the date of this writing. The Senate Finance Committee held a hearing on SB 328 on February 21, 2019, at which time the amendments included in the bill that passed the House were proposed for the Senate version. No vote was held on the amendments and the committee has not yet scheduled a vote on the bill.

A similar version of HB 38 was introduced in the Maryland Senate in 2017 as SB 468, but the bill received an unfavorable report and died in the Senate Finance Committee,11-0. While that bill, too, applied only to employees earning less than $15 per hour or $31,200 annually, it did not expressly prohibit or allow nondisclosure agreements that limited the taking or use of client lists or other proprietary information, as this year’s HB 38 does. Moreover, the current membership of the Senate Finance Committee has altered significantly since 2017; only sixof the members from 2017 remain on this committee, which is now led by Senator Delores G. Kelley (D-10). It remains to be seen whether the proposed amendments and changes to the Committee membership will alter the outcome of SB 328/HB 38 this session.

_____________________

[i]Maryland does not currently regulate covenants not to compete. Becker v. Bailey, 268 Md. 93, 299 A.2d 835 (Md. 1973)set forth the parameters of an enforceable noncompete employment agreement.

[ii]The employees to whom the $15 minimum wage will apply are set forth in the Fiscal and Policy Notefor the “Fight for Fifteen” Bill.  Under the Bill’s current language, employees who previously have not been covered by the minimum wage, such as commission employees and certain agricultural employees, would be covered by 2023.