In the Washington area, and particularly in Montgomery County, there are of course many businesses that compete for federal government contracts. One of the ways such businesses seek to protect their business is to require employees to sign employment contracts which contain covenants not to compete. These are provisions that purport to limit what kinds of jobs, at least for some period of time and geographic area, the employee can take if they leave their employment. The Courts tend to limit the enforceability of such provisions, as illustrated recently by Maryland’s intermediate appellate court in the case of Ecology Services, Inc. v. Clym Environmental Services.
According to the Court’s opinion, Ecology Services had contracts with NIH to dispose of radioactive waste and hazardous materials at two locations. It hired employees with particular job descriptions, and each signed a contract with a covenant not to compete. The non-compete clauses provided that for one year after leaving employment, and within a 100 mile radius of Ecology’s business area, they would not accept employment with a competing business or disclose confidential information.
Clym Environmental was a competing business, owned by two former employees of Ecology Services. When competitive bid contracts formerly held by Ecology ended up going to Clym, within one year several former employees of Ecology were hired by Clym to perform similar jobs. Ecology Services then sued to seek an injunction enforcing the covenants not to compete. The trial judge issued judgment for Clym, holding the clauses were not enforceable, and Ecology appealed.
The Court of Special Appeals agreed with the trial judge, and held the clauses were not enforceable even though the employees had agreed to them originally. It noted that under Maryland law, covenants not to compete are enforced only against employees who provide unique services so that they would be difficult to replace, or to prevent misuse of trade secrets, disclosure of lists of clients or solicitation of customers. Such a clause must be confined within limits of time and area no greater than is necessary to protect the former employer, and so as not to work on undue hardship on the employee of adversely affect the public interest.
In reviewing the facts of this case, the Court came done on the side of the employees. It noted first that both sides agreed that the limitations of one year and 100 miles was reasonable. It then turned to the other factors to be weighed in whether to enforce the non-compete clauses.
It held that there was no evidence that Clym had used these employees to get the contracts with NIH. There was no evidence that they held trade secrets. The Court said the evidence did not show these employees had unique or special skill sets, so that it would be unduly difficult to replace them. It found that the facts supported that it would work on undue hardship on the employees to enforce the covenants.
The Court finally said that enforcing such a non-compete clause would not be in the public interest, since it would reduce the number of eligible employees in this area for employment on federal government contracts. This illustrates the difficulty employers may have in trying to enforce such non-compete agreements.