It may not be as ominous as the Fiscal Cliff, but Maryland employers should take heed: there is legislation proposed for the upcoming General Assembly session that would render inapplicable a valid non-competition agreement between an individual and his or her prior employer under certain circumstances. Senate Bill 51, which would amend the Labor and Employment Article of the Maryland Annotated Code, provides that if any individual applies for and is deemed eligible to receive unemployment benefits pursuant to Maryland law, that individual cannot be bound by any restrictive covenant that may be in place from an agreement with a prior employer. Therefore, if an individual is not disqualified from unemployment and has a valid and binding noncompetition agreement in place, that non-competition agreement cannot be enforced and the individual is free to pursue seeking employment that violates that obligation.
The bill does not specify if the individual must be unemployment eligible in that the individual is able and available to work, as well as not disqualified because of a voluntary quit or cause termination. As written, it would seem “eligible to receive unemployment” means not disqualified for any reason. The bill does specify that, if enacted on October 1, 2013, it will not apply retroactively. Employers who may have been disinterested in challenging unemployment claims for former employees would now have a very real motivation to change strategy, especially for employees who have non-competition obligations in place. We will continue to monitor this proposed legislation.