Anatomy of "Non-Compete" Agreements

Most Maryland companies that utilize salespeople to conduct their business are familiar with “Non-Compete Agreements.”  These are the agreements that prevent an employee from leaving the company and taking all of the company’s customers with them to their new employer.  Most companies don’t know, however, exactly what is in these “non-competes.”  In many cases, the agreement is one that was drafted by a Maryland employment lawyer years ago.  Often, it has been copied over and over again, perhaps making changes here and there, without much thought going into whether the agreement still is valid, or whether it fits the particular circumstances of a particular employee.  Sometimes employers just grab a form off of the internet.  Employees often sign these agreements without considering exactly what they are signing, simply resigned to the fact that if they want to get the job, they have to sign the document. 

We think that both Maryland employers and employees should know a little bit more about these important agreements.  And the starting point is to know what the standard restrictions are that you can expect to find in a “Non-Competition Agreement.”

Non-Competition Provisions v. Non-Solicitation Provisions in Maryland

There are two different kinds of restrictions that a non-competition agreement can, and often does, contain.  The broader provision – meaning, the one that restricts the employee more – is called a “non-competition” clause or provision.  A non-competition provision prohibits a former employee from doing any kind of work for a period of time after leaving the company that would compete with the former employer.  In most cases, that means that it prohibits the employee from setting up his own competing business, or working for a competitor, usually for a period of 1 – 2 years.  By having the employee “sit on the sidelines” in the market for a period of time, the company gives itself time to reestablish its relationships with the customers previously serviced by its former employee.  Of course, this provision is very harsh for an employee, and the courts do not like them since they handcuff an employee’s right to earn a living without interference.  Nevertheless, as long as these provisions are reasonable in geographic scope and length of time, the courts will uphold them.

A “non-solicitation” clause or provision, however, is narrower – meaning, it restricts the employee less than the “non-compete” provision.  A “non-solicitation” clause simply prohibits an employee from soliciting the employee’s former customers for a period of time after leaving the company.  There is no prohibition against the former employee setting up a competing business, or going to work for a competitor right away after leaving his or her employment.  The employee simply is restricted from going after the customers he or she previously serviced at the old job for a period of time, which usually is between 1 – 2 years.  Employees need to know that they should not expect to get around a non-solicitation clause by being shrewd, for example, by working at a new company and having one of their new co-workers go after their old accounts (instead of contacting those previous customers directly).  Plans like that will not succeed.  These provisions are universally drafted to prevent employees from soliciting their old accounts either “directly or indirectly” – and the courts know very well what an “indirect” solicitation looks like.  Nevertheless, as long as the employee leaves the old accounts alone, they get the benefit of getting to work right away, without having to sit on the sidelines of their chosen profession, job, or industry. 

In addition to providing for non-solicitation of accounts or customers, “non-compete agreement” also usually contain a provision that prohibits former employees to solicit their previous co-workers to leave the old company with them.

Expect to Find Both a “Non-Compete” and a “Non-Solicitation” Provision in a “Non-Competition Agreement”

Despite the win-win proposition that a non-solicitation clause provides and which makes it a more well-balanced approach toward imposing these restrictions, most Non-Competition Agreements usually contain both a non-competition clause and a non-solicitation clause.  There are many reasons that contribute to this practice, including institutional habit, and a perception that the non-compete provides greater protection for a former employer than a non-solicitation agreement would.  Nevertheless, limiting an employee’s post-employment restrictions to non-solicitation provisions, rather than non-competition clauses, increasingly is the sign of a more evolved and well-balanced working environment, and former employees often are more motivated to comply voluntarily with non-solicitation agreements than non-competition agreements.

As with all legal agreements, the Non-Competition or Non-Solicitation Agreement must be drafted with care.  At Luchansky Millman, our Maryland employment law attorneys regularly draft or review many different kinds of agreements relating to the workplace, including employment agreements, severance agreements, settlement agreements and releases, separation agreements, employee handbooks, confidentiality agreements, and, of course, non-competition and non-solicitation agreements. 

Schedule a Consultation

If you need an employment-related document drafted or reviewed, call Bruce Luchansky, Esq. or Judd Millman, Esq., at Luchansky Millman, 410.522.1020.  Luchansky Millman is a law firm located in Towson, Maryland that is dedicated to the practice of Maryland Workplace Law, addressing legal issues that arise in connection with the Maryland workplace.  Call our Maryland employment lawyers with your question today for a consultation.

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