A non-compete is a restrictive agreement prohibiting former employees from working for a competitor of their former employer, or to otherwise compete with them. As employees reenter the job market or start their own businesses as a result of COVID-19, the viability of their non-competes may be a growing concern in the coming months. Below are common non-compete scenarios that employees and employers might face.
1. Employees Currently Under a Non-Compete
In Maryland, non-competes are generally unenforceable if they are more restrictive than reasonably necessary. Non-competes may not impose undue hardships on the former employee or the public. During a time of unprecedented unemployment, employees might be able to argue that that their non-competes impose unacceptable hardships on their ability to get a new job. Moreover, given the current need for workers in essential sectors (e.g., healthcare), a former employee could argue that the benefits of their non-compete agreement is currently outweighed by the costs it imposes on the public.
2. Furloughed Employees
If a furlough turns into a termination, an employee should carefully review the terms of their non-compete, as it might not apply under these circumstances. Some non-competes specify that they are unenforceable unless an employee is terminated “for cause.” Additionally, an employee may be able to argue that the clock on their non-compete should start running from the time their furlough began, and not the time of their termination.
An employer who knowingly hires an employee under a non-compete could be liable for interfering with an employment contract. They may also have to battle an injunction to enforce the non-complete and could lose their new hire. However, it is possible that under the unique circumstances created by the COVID-19 pandemic, judges may decide that some non-competes are unduly burdensome and won’t punish hiring employers.
4. New Hires
Given the current job market, new hires won’t have much leverage to push back against a request to sign a non-compete. However, a potential strategy is to sign a contemporaneous affidavit testifying to the specific circumstances under which the agreement was signed. If an employee can show that the agreement was signed under duress, a court might be hesitant to enforce the agreement.
Finally, a non-compete agreement could potentially be invalidated under the doctrines of force majeure, impossibility, or frustration of original purpose (see here for more information).