Are there any reprocussioms for signing an invalid Non-compete?

[CharlesWithQuestions]

Sorry for the long post, thanks in advance!

I've been working at my current job for 6 months. After my last review they handed me updated forms and asked me to sign a new NDA/Non-compete document. I spotted some red flags (more severe remedies to breakin, longer terms, and term inconsistencies) and decided to do more reading on non-competes in MD.

I found a Maryland statute (3-716) that to my understanding, prevents me from entering a valid non-compete because I dont meet the minimum pay requirement (I make $19/hr while the statute references 150% of minimum wage which comes to $22.50/hr as of January 1st in our jurisdiction).
Please note the statute does say the following "This section does not apply to an employment contract or a similar document or agreement with respect to taking or use of a client list or other proprietary client-related information". To me this reads that an NDA is valid but they are arguing that this clause makes the non-compete valid regardless of pay if they provide me with proprietary information.


I verbally agreed to the NDA but pushed back on the non-compete. They are now claiming that the lawyers agree that the whole document is valid if I sign. Even dangled the carrot a bit, "you'll be making more than 150% in another six months anyway but it will be valid regardless"

What are the risks of signing an invalid non-compete?

I've already been looking for work but taking my time to be picky because I though I had plenty of time. Seems like I am quickly approaching a sign or get fired situation. Thanks in advance!

 

[Taxing Matters]

You'd need to consult an attorney in MD to read the entire agreement and explain your current situation to find out exactly what you'd be stuck with if you signed it. Non compete contracts are, to use the legal expression, "disfavored in the law" which means that courts will look at them closely and if they fail to meet the requirements set out in state stautes or court decisions in some way they won't be enforced. Each state's rules on what makes a non compete agreement valid are different so you do need advice from someone well versed in Maryland's law on it.

How it is written affects too what other provisions may be enforceable. It may be that if the noncompete portion of a single document is invalid the court might chuck the whole contract out, or the court may just reform the agreement to take out the offending provisions and leave the rest in force. There is also another issue to discuss with the employment lawyer: whether the agreement would actually amount to a contract at all. In a number of states an employer has to offer you at least something more than just continued employment in exchange for you signing the agreement for it to meet the requirements of a contract. NDAs are easier for employers to enforce as they are not disfavored as non compete agreements are, but they still have to meet at least the basic requirements of any contract and there may be some limitations on how much an employer can stuff into an NDA.

The bottom line here is that the worst that can happen if you sign it is that the entire agreement is enforceable and you'd have to live with that. But it may be that the employer is offering what it knows is not an enforceable noncompete agreement but is hoping that you don't know that and you will keep to the agreement anyway. I'm not familiar with the details of MD non compete agreements, and I haven't read the agreement the employer wants you to sign, so I can't tell you what parts are enforceable and just how reasonable the provisions are.

 

[cbg]

Obviously I can't say if this is the case or not, and in fact it's not overly likely. But some years ago my then-employer required every employee to sign a non-compete/non-disclosure agreement because it was required by the source of our funding. We had absolutely no intention of enforcing them and if asked, we would admit that. But our funding would have been pulled if we hadn't had them on file. So we put them on file and forgot about them.

 

[Taxing Matters]

Obviously I can't say if this is the case or not, and in fact it's not overly likely.

I'd say that's very unlikely. I've not ever seen an employer do that, though none of my firm's clients were being forced to do it to get the contract either.

My state has become one in which non compete agreements generally are void unless its in connection with the sale of a business or a retirement. We don't go quite as far as CA does, but we don't enforce them in most situations. That makes my relatively small (nearly) square state one of the first, if not the only, purple states to have moved in CA's direction on this. Outside the South, that may become more the standard over time. The South, well, it's very heavily employer favorable in many of those states, so I don't see a lot of them rushing to do it.

 

[quincy]

Published last month by the Maryland State Bar Association is an article by Parker E. Thoeni and Paul D. Burgin titled “Covenants Not to Compete Draw Increased Scrutiny Nationwide.” It goes over the new laws in Maryland and other state and federal actions to limit or eliminate the use of non-compete agreements. For a better understanding of the laws as they currently stand, the article is worth a read.

https://www.msba.org/covenants-not-to-compete-draw-increased-scrutiny-nationwide/

When someone in Maryland signs an agreement that has invalid or unenforceable provisions, a court can at their discretion blue-pencil (scratch out) the unenforceable provisions and enforce the rest of the agreement, or the court can void the whole agreement. This would be true for both non-compete agreements and non-disclosure agreements.

What you risk in signing an agreement that includes unlawful or invalid or unenforceable provisions is, if the company tries to enforce it as written, you might have to head to court.

 

[zddoodah]

I found a Maryland statute (3-716)

It's Labor and Employment Code section 3-716.

that to my understanding, prevents me from entering a valid non-compete because I dont meet the minimum pay requirement (I make $19/hr while the statute references 150% of minimum wage which comes to $22.50/hr as of January 1st in our jurisdiction).

It doesn't prevent you from entering into anything. What it says, in sub-section (a)(1) is that "This section applies: (i) to an employment contract or a similar document or agreement concerning an employee who earns equal to or less than 150% of the State minimum wage rate established under § 3–413 of this title." In sub-section (b), it says that "[a] noncompete or conflict of interest provision in an employment contract or a similar document or agreement that restricts the ability of an employee to enter into employment with a new employer or to become self–employed in the same or similar business or trade shall be null and void as being against the public policy of the State."

If, in fact, you earn less than 150% of the state minimum wage, then section 3-716 applies to you, and provision as described would be considered null and void.

Please note the statute does say the following "This section does not apply to an employment contract or a similar document or agreement with respect to taking or use of a client list or other proprietary client-related information". To me this reads that an NDA is valid but they are arguing that this clause makes the non-compete valid regardless of pay if they provide me with proprietary information.

Not sure what you're saying here. No one is arguing anything. The language you quoted from section 3-716(a)(2) simply means that section 3-716 does NOT make null and void any provision in an agreement that restricts your ability to use employer client lists and other proprietary client-related information.

What are the risks of signing an invalid non-compete?

If it's invalid, then there are no risks. However, no one can intelligently assess an agreement without reading it.

 

[quincy]

There are several states (and DC) that currently not only ban noncompete agreements but also impose penalties on those employers who require their employees to sign these noncompete agreements. The penalties vary by state and are mostly civil fines of various amounts (although criminal penalties have issued).

Maryland does not yet, to my knowledge, impose such penalties on employers but instead any violative agreements will be void as against public policy. I imagine that fines or other penalties will be coming in the future.

 

[adjusterjack]

What you risk in signing an agreement that includes unlawful or invalid or unenforceable provisions is, if the company tries to enforce it as written, you might have to head to court.

Which is guaranteed to be quite costly.

 

[quincy]

Which is guaranteed to be quite costly.

Agreed. For both employer and employee.

 

[adjusterjack]

For a better understanding of the laws as they currently stand, the article is worth a read.

https://www.msba.org/covenants-not-to-compete-draw-increased-scrutiny-nationwide/

Another resource is this one that covers all 50 states and DC:

50-state noncompete chart updated for January 2024 (faircompetitionlaw.com)

 

[quincy]

Another resource is this one that covers all 50 states and DC:

50-state noncompete chart updated for January 2024 (faircompetitionlaw.com)

Although the site specifically notes at the bottom of the page that it is “attorney advertising,” I agree it is a good resource - if what is displayed is accurate (and I would rather assume it is than personally check all 50 states).