Unrestricting Employees

While most of us have been distracted by such minor kerfuffles such as whether the president should be impeached, the real world continues to move forward. My friend, Julie Janofsky, relayed to me that Maryland has now, by statute, declared that non-competition covenants entered into by lower paid employees are not enforceable.

The statute, Md. Labor Law Art. § 3-716, makes such provisions unenforceable with respect to employees making $15 or less an hour or $31,200 a year or less. Customer lists and other proprietary information remain protected.

In 2016, the Obama Administration issued a “Call for Action,” urging states to render such provisions unenforceable. Needless to say, the Trump Administration did not join in encouraging such legislative action.

Here, as it is still often the case, Justice Brandeis, dissenting, got it right:

It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory.

New State Ice Co. v. Liebmann, 285 US 262, 311 (1932).

3 thoughts on “Unrestricting Employees”

  1. Hopefully they’ve indexed the pay rate, and made it so that you can get a modest raise without having to sign a non-compete.

  2. It’s my non-lawyer impression that non-competes signed by lower level employees are generally unenforceable. What the NJ statute does is take away the threat of enforcement, which is often effective, since $15/hr workers usually can’t challenge these agreements in court.

    1. You’re correct about non-enforceability to the extent that we’re talking about whether a court would enforce such a restrictive covenant. However, since a restrictive covenant can be enforced not only against the employee, but against a subsequent employer, as a practical matter such covenants were enforceable.

      By way of example, a competing sandwich shop hires a $10.00 per hour employee. Prior employer, via its lawyer, sends a letter saying: “Here’s the restrictive covenant. Fire employee or we’ll sue both you and employee.”

      The “offending” sandwich shop undoubtedly has no lawyer on staff or on permanent retainer. Thus, the result would be the immediate firing of the employee since even resistance via a lawyer’s FY letter would entail some expense.

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