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In the wake of the Federal Trade Commission’s vote to ban noncompete agreements for U.S. workers, Maryland employment law practitioners and organizations have expressed mixed reactions to the new rule — ranging from cautious optimism to concern over the stability of the Maryland workforce.
Though the ban has yet to take effect and will not for months, litigation challenging the ban has already begun, with the U.S. Chamber of Commerce filing a federal lawsuit Wednesdayand more legal challenges expected.
Mary D. Kane, president and CEO of the Maryland Chamber of Commerce, said her organization has not been asked to participate in the federal legal challenge as of now, but noted the ban on noncompete agreements does not help to address Maryland’s workforce challenges.
“We are not too excited about the FTC banning noncompete agreements because they really are something that our businesses use to maintain a stable workforce, protect their intellectual property, their trade secrets and their investments in training and development,” Kane said. “It’s not an ideal situation.”
Under the new rule, existing noncompete agreements for most workers — with the exception of senior executives — will no longer be enforceable after the rule goes into effect, according to the FTC.
Kane said the Maryland Chamber of Commerce encourages its employers to follow the law, but also noted that noncompete agreements typically provide for a stable workforce and allow employers to protect their business interests.
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Teresa Teare, co-managing partner at Shawe Rosenthal LLP who represents employers and management in employment-related litigation, said the FTC likely overstepped its authority by banning noncompete agreements.
“I think it’s going to make employers and companies throughout the United States have somewhat of a ‘fire drill’ to determine whether this applies to their contracts and whether they have to take any action,” Teare said. “It’s a wait-and-see game to determine whether the courts are going to allow this to go forward.”
Prior to the FTC’s new rule, limitations on noncompete agreements were previously left to individual states to litigate and legislate, Teare said. While some states like California have prevented noncompete agreements altogether, Teare said the Maryland courts “have developed a good body of case law that gives practitioners a road map” in drafting legally sound noncompete agreements.
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Greg Care, partner at Brown Goldstein & Levy who practices employment law primarily on behalf of employees, said the FTC’s ban fits into a broader constellation of reforms on noncompete agreements.
During this year’s legislative session, Maryland lawmakers in both chambers passed legislation that would prohibit noncompete agreements for certain veterinary and health care professions. The bill is awaiting governor approval.
Care said the FTC’s rule is ambitious in breadth but welcome for his client base.
“One thing that the FTC was very careful to point out was this final rule … still allows employers to enforce nondisclosure agreements and nonsolicitation agreements,” Care said. “The conversation on noncompetes is almost a little ironic because if you look at the case law in Maryland, certainly, it’s clear that the protectable interest that employers have isn’t to prevent competition.”
Instead, Care said, Maryland case law expressly says employers can’t try to “hold on” to a particular employee to prevent competition with them, but can preserve the goodwill the employee builds with his or her work with the employer.
“It’s not competition, it’s preservation of goodwill, and that’s a really important distinction that I think a lot of the arguments against noncompetes don’t really recognize,” Care said.
Joyce Smithey, founder of Smithey Law Group in Annapolis who practices employment law, said noncompete clauses keep workers from leaving a job and ultimately result in smaller applicant pools for potential employers.
“Noncompetes also cause lower pay since employees are not able to move as freely,” Smithey said, noting that employers will likely rely more heavily on trade secrets law and non-solicitation agreements to protect their confidential information.
Though the ban has not yet taken effect, one Maryland employment law firm is concerned the ban will create more noncompete litigation in the short term.
Joseph Gibson, managing attorney at The Employment Law Center of Maryland, said the nonprofit firm has consulted with individuals who believe the ban is already in effect and have been operating under that assumption.
“I think there’s been a slight distance between the reality of it and how the media has reported it,” Gibson said. “We have absolutely seen people come into consultations that are engaged in some type of dispute with an employer and they have the impression that noncompetes have been banned already.”
Gibson said Maryland employers have started to soften noncompete agreements or drop them altogether in response to the changing landscape surrounding the legislature’s efforts to limit noncompete agreements.
“We’re in the initial stages of a very lengthy campaign,” Gibson said. “There’s a lot more to come, but it’s absolutely a positive step in the right direction for Maryland workers, and we’re thrilled about that.”
