A case decided this week by a Maryland federal court highlights the importance of careful drafting when it comes to non-compete agreements. Allied Fire Protection, Inc. v. Huy Thai, No. 17-551 (D. Md. 10/2/17). In this case, Allied Fire Protection sought to enforce such an agreement when defendant Thai, a high-level employee, left to join Allied’s competitor. Specifically, the agreement prohibited Thai from directly or indirectly engaging in any type of engineering, consulting or general construction business, located anywhere, for 60 months post-employment. Thai argued that the agreement was unenforceable because it posed an undue hardship on him, and was “wider in scope and duration” than was necessary to protect Allied’s interests. Allied countered that the agreement was reasonable given Thai’s level of authority, his insider knowledge, and the limited restriction to “established clients” only. The court analyzed the agreement under Maryland law, which requires the following for an agreement to be enforceable:
- The employer must have a legally protected interest;
- The restrictive covenant must be no wider in scope or duration than reasonably necessary to protect the employer’s interest;
- The covenant cannot impose an undue hardship on the employee; and
- The covenant cannot violate public policy.
Ultimately, the court rejected Allied’s argument, holding that:
- A five year restriction was not reasonable under Maryland law;
- Absence of any geographical limit was not reasonable; and
- The prohibition on Thai’s ability to accept similar work was not reasonable.
The case is a good reminder for businesses to periodically review non-compete agreements and evaluate whether terms will be viewed as reasonable if challenged in court.