Are Non-Compete Clauses Legal in Business Contracts?

Non-Compete Clauses

Businesses use non-compete clauses in order to protect themselves from having employees leave or quit to work at a rival company. The rising value of trade secrets has prompted employers to issue more non-compete contracts. Estimates are that about 20% of the American workforce is subject to a non-compete contract and that 37% have signed one at some point in their career. If you have been approached to sign a non-compete agreement or are contemplating making non-compete clauses a part of your employment practice, you may want to talk with an experienced business transaction lawyer before you move forward.

Why Are Non-Competition Clauses so Popular?

The number of non-compete agreements has also increased due to rising worker mobility and the propensity for former employees to take information with them as they leave a company.

However, non-compete agreements have come under fire in recent years as some employees have started to push back them due to their restrictive nature. Some poorly drafted non-competition clauses have been litigated in court.

A court often decides to render a non-competition clause unenforceable if there is nothing of value that is given to an employee upon signing, or if they restrict competition for an egregious amount of time or territorial reach. States have different rules and regulations concerning non-compete clauses and their legality in court. Some states like California choose not to enforce a non compete clause at all, while others like Florida place a great degree of value on protecting an employer at the expense of an employee’s future job prospects.

Are DC Non-Compete Clauses Valid?

The District of Columbia does not have well-defined statue concerning non-compete contracts. Courts usually look to understand an employer’s motivations for having an employee sign a non-compete as a way to determine its validity.

They also consider if an employee gets any benefits after signing, and also determine if the contact’s scope is reasonable to the point where it will not disregard the public interest or result in hardship for the employee. Overall, non-competes in DC are generally seen as enforceable if the court deems the terms to be reasonable and necessary for the businesses to protect relationships or industry secrets.

Are Virginia Non-Compete Clauses Valid?

Non-compete clauses in Virginia are legally enforceable if the business can show that the restriction is reasonable, prove that it does not violate Virginia’s public policy, and show that it does not overly restrict an employee from making money or finding a job in the future. In Virginia, the burden is on the employer to prove that the clause is valid if questions come up.

Courts in Virginia usually look to see if the restrictions on time and geography for an employee are reasonable. They also cast a stern eye on language that is vague or ambiguous, and will usually validate agreements that prohibit employees from distributing specific items like consumer lists, market expansion plans, or precise market shares.

Non-compete clauses in the state must only restrict future work to the roles or duties an employee had at the company. This rule is known as the “Janitor Rule” in the state. The Supreme Court of the state has said a non-compete would most likely not be enforceable if it prohibited a former employee who worked as an engineer from working for a competing business as a janitor.

Are Maryland Non-Compete Clauses Valid?

Maryland’s non-compete regulations are more restrictive than other states. A non-compete must be supported by adequate consideration, be reasonably limited in regards to time and geography, be ancillary to an employment contract, and must not create undue hardship in order for it to be enforceable.

The state of Maryland only permits employees to sign non-compete agreements under two circumstances

  1. In order to prevent unfair competition from previous employees

  2. If an employee is going to offer special services to an employer

The state also adheres to the ‘blue pencil doctrine’, which gives courts the ability to strike down certain aspects of a non-compete without actually nullifying the entire document. Employers in the state have the power to seek primary and permanent injunctions along with a variety of damages if they find an employee breaking a non-compete agreement.

If you need advice about a non-compete clause or any other business matter, schedule a consultation with business transaction attorney Stephen Thienel. With his extensive business experience, he brings a unique perspective to the challenges you are facing and may face in the future. Mr. Thienel has decades of experience assisting clients with their business transactional needs throughout, Maryland, Virginia, and the District of Columbia.