Thursday, September 12, 2019

Two Maryland Non-Compete Clauses And A Magic Blue Pencil.

Aerotek filed suit in Maryland against a former employee alleging she violated a non-compete agreement.  Aerotek v. Obercian, 377 F. Supp. 3d 539 (D. Md. 2019).  The employee had significant customer contact while working for Aerotek.  The agreement contains two non-compete clauses that generally prohibit this employee, for 1 year post-termination, from:  (1) performing business similar to that which she performed at Aerotek and (2) working for any business that is engaging in a business similar to Aerotek's.

Can you guess which clause the Court found enforceable and which it found was not?

The Court found Clause 1 facially enforceable because it is plausibly directed at a legally protectable interest.  That interest, according to the Court, is ensuring that a departing employee does not steal the employer's customers.  

The Court found Clause 2 facially unenforceable because it prohibited Aerotek's former employee from working for a competitor, even if she was not doing competitive work.  This is sometimes called the, "janitor test."  Clause 2 is unenforceable because it prevents Aerotek's former employee from working as a janitor for a competitor.  

When a non-compete agreement contains two or more divisible clauses, the Court use a magic "Blue Pencil."   That means, the Court can re-write the Agreement to excise unenforceable clauses and keep the enforceable ones.  And, that is what the Court did.

But the Court also ruled that it was not clear whether the employee's work at her new job is competitive to the work she performed for Aerotek or whether she stole any Aerotek customers.  As such, the Court denied Aerotek.'s motion for summary judgment.  A jury will now decide the dispute.    (A jury will also decide whether this employee violated a non-solicitation clause and whether she is entitled to damages on a counter-claim she filed for a bonus).

(Updated to note:  this case settled before trial).

Thursday, June 13, 2019

New Maryland Law Broadens Protections Against Workplace Harrassment

A new law, that takes effect October 1, 2019, expands the protections Marylanders have against workplace harassment.  The new law:

  • Allows independent contractors to claim workplace harassment.
  • Extends the time for individuals to file administrative claims for workplace harassment to two years (up from 180 days).  
  • Expands the scope of our State's anti-discrimination law to employers with one or more employees (down from 15 employees).    
  • Clarifies that harassment based on the following is prohibited: race, color, religion, ancestry or national origin, sex, age, marital status, sexual orientation, gender identity, or disability.
Facing workplace harassment?  Consult a Maryland Employment attorney.

Thursday, May 23, 2019

Law Limiting Non-Compete Agreements in Maryland to Take Effect October 1, 2019

The Maryland General Assembly passed a law rendering unenforceable non-compete agreement as applied to certain lower wage employees.  The law renders void non-compete agreements that attempt to restrict competition by employees earning equal to or less than $15.00 per hour or $31,200 annually.    The new law, for the most part, codifies the existing state of affairs in Maryland under decision law.  That law makes clear that only a narrow class of employees may lawfully be covered by such an agreement. 

Monday, January 28, 2019

Varying Independent Contractor Tests Apply to Maryland Employees

Employees in Maryland enjoy our broad array of worker protection statutes.  Employees may qualify for sick leave and parental leave.  They can sue for overtime and lost wages (and may be eligible for triple damages).  They may be eligible for unemployment.  Employers, of course, are required to withhold income and payroll taxes for their employees.

Independent contractors get bupkis (nothing).  They likely have to pay self-employment tax.

This disparity in rights creates an incentive for employer to push individuals toward being classified as independent contractors. 

But, could you be an employee for one purpose and an independent contractor for another?   The answer is, "yes."  That is because there are different independent contractor tests for different statutes.

The broadest test is called the "ABC" test because all three prongs of the test must be met.  It applies to claims for unemployment and the Maryland Workplace Fraud Act (which only applies in the construction and landscaping industries).  To be an independent contractor under this test the employee must be:
  • free from control and direction;
  • performing work in his or own business or occupation; and
  • either (i) performing work that is different than the business of the person for whom the work is performed; or (ii) performing the work in a different location than the person for whom the work is performed.

A narrower "economic realities" test applies to most other Maryland statutes.  This flexible approach focuses on whether the worker is economically dependent on the business to which he renders.  It looks at 

  • the degree of control that the employer has over the manner in which the work is performed;
  • the worker's opportunities for profit or loss dependent on his managerial skill;
  • the worker's investment in equipment or material, or his employment of other workers;
  • the degree of skill required for the work;
  • the permanence of the working relationship; and
  • the degree to which the services rendered are an integral part of the putative employer's business.
Though similar to the economic realities test, the IRS and the NLRB have their own tests as well.  What should one do to navigate this forest of varying and multi-factored tests?  Of course, my advice on this is to seek some professional advice.  You might be surprised that you qualify as an employee for one purpose but not another.


Friday, January 18, 2019

New Maryland Law Makes General Contractors Liable for Unpaid Wages Owed by Sub-Contractors

As of October 1, 2018, under a new law, general contractors in the construction industry are liable for wage theft by their sub-contractors.  General contractors are liable regardless of whether they control the sub-contractor's employees.   This new law broadens the possible defendants in a claim under the Wage Payment and Collection Law.  An employee in the construction industry may file for a lien, and may sue his direct employer, the individual owner of the company he or she works for, and - now - the general contractor.  The Law allows for triple damages and attorney's fees if the employee can prove that wages were withheld in bad faith.   

Tuesday, January 15, 2019

Maryland's “Disclosing Sexual Harassment in the Workplace Act of 2018"

Maryland has a new law effective October 1, 2018, called the Disclosing Sexual Harassment in the Workplace Act.  One of the Act's main provisions says this:
Except as prohibited by federal law, a provision in an employment contract, policy, or agreement that waives any substantive or procedural right or remedy to a claim that accrues in the future of sexual harassment or retaliation for reporting or asserting a right or remedy based on sexual harassment is null and void as being against the public policy of the State.
What does this mean?  Some employers require that employees sign employments agreements that limit the employees' ability to pursue their legal claims.  One example is a provision waiving an employee's right to a trial by jury in any future claim against his or her employer.  Such a provision "waives" a "procedural right" for "asserting" a claims "based on sexual harassment.   Under this new law, the provision is void. 

Employment agreements and employee handbooks attempt to limit employment claims in all kinds of different ways, including ways that may appear neutral on their face.  For example, a provision in an agreement might select a different State's law to apply to employment-based claims. Such a choice-of-law provision could well be viewed as waiving a Maryland claim (as is the case for claims under the Maryland Wage Payment and Collection Law).

One issue that will likely arise soon is whether a mandatory arbitration clause is void under this new law.  Such clauses are generally governed by the Federal Arbitration Act.  The meaning of the new law's introductory phrase, "except as prohibited by federal," could be put to the test.  A Court would have to determine whether Federal law prevails and preempts the effect of the new Maryland law.       

Monday, January 14, 2019

Costs To Defend Against Alleged Non-Compete Violations Often Drive Employee Decisions (Even if the Agreement is Likely Unenforceable)

I have reviewed many, many non-compete agreements over the course of my career.  A very large portion of them are likely unenforceable under existing Maryland law.  The agreements are overbroad, do not protect a legitimate business interest, purport to apply to an employee who cannot be covered, or contain terms that are presumptively unlawful.   Employers often demand that low-wage employees sign obviously unenforceable non-compete agreements as a condition of employment.  For example, the sandwich shop, Jimmy John's, required that many of its sandwich makers sign non-compete agreements (until it recently stopped this practice). 

The costs to an employer of requiring non-compete agreements is nominal.  The agreement becomes just another form to be signed.  Many employees do not dwell on these forms -- often because they need the job.  

But the costs to the employee can be great when he or she seeks to change jobs.  The mere threat of lawsuit will often drive the employee to comply (and decline the job offer that he or she otherwise would have accepted).  That is because the costs of defending one of these agreement can be expensive.   

An employee faced with threatened enforcement of non-compete should contact a lawyer.  There are ways to leverage your way out of such agreements.    

Legislators have attempted to address this issue over the years.  Already in the Legislative Session, Al Carr, introduced HB38 (link to fiscal note).  It would render void non-compete agreements signed by employees making $15 per hour or less per hour or $31,200 or less per year.  

If you are facing threatened enforcement of a non-compete agreement, you should review this post and reach out to an attorney.