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Enforcement of Non-Compete Not Dependent on Solicitation of Former Clients or Use of Confidential Information

Monday, April 12th, 2010

In TEKsystems, Inc. v. Bolton, (2010), the Maryland Federal District Court recently reinforced Maryland law on the point that the enforcement of a covenant not to compete is not dependent on whether the competing former employee solicits his former employer’s clients or uses its confidential information, but rather on whether or not the scope of the restrictive covenant is reasonable. The only factors that will determine whether the non-compete is valid are its temporal and geographical limits, the employer’s legitimate business interests, the employee’s unique and specialized skills, any undue hardship on the employee, and the public interest served by enforcing the restrictive covenant.

The non-compete found in the former employee’s employment agreement contained standard language prohibiting the former employee from engaging “in the business of recruiting or providing on a temporary or permanent basis technical service personnel, industrial personnel, or office support personnel” for a period of 18 months after termination of employment, and within a geographical limitation of a 50-mile radius of the employee’s former office. Both the period of time of 18 months and the geographical scope of 50 miles have been held as reasonable on numerous occasions by Maryland courts.
The Court also found that the employer had legitimate business interests in enforcing the covenant, the employee possessed unique and specialized skills, and the employee would not suffer undue hardship by enforcing the covenant. The enforcement of the non-compete was upheld against the former employee.

To read a comprehensive blog of all of the issues address by the Court in this case, visit the blog of the Business Law Section of the Maryland State Bar Association at http://marylandbusinesslawdevelopments.blogspot.com/search/label/Injunctive%20Relief.

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Maryland Courts May Grant Injunctive Relief Even when an Arbitration Clause Exists

Tuesday, December 8th, 2009

Maryland law permits a party to request injunctive relief from a Maryland federal or state court even when a contract states that all disputes must be referred to arbitration. The Court of Appeals of Maryland held in Brendsel v. Winchester Construction Company, Inc., 898 A.2d 472 (2006) that:

“[A]n interlocutory mechanics’ lien is in the nature of a provisional remedy, not much different than an interlocutory injunction or attachment sought to maintain the status quo so that the arbitration proceeding can have meaning and relevance, and the predominant view throughout the country is that the availability of such remedies by a court is permitted by the Federal and Uniform Arbitration Acts and is not inconsistent with the right to enforce an arbitration agreement.”

In its ruling, the Maryland Court of Appeals focused on the need for courts to have the ability to preserve the status quo by granting injunctive relief while a dispute is sent to arbitration. Without this ability, the Court held, a ruling by an arbitrator could very well be immaterial, as the damage done to a party could by that time be irreparable.

The Maryland Court of Appeals’ holding finds support from the Fourth Circuit in Merril Lynch et al. v. Bradley and Collins, 756 F.2d 1048 (1985):

“Accordingly, we hold that where a dispute is subject to mandatory arbitration under the Federal Arbitration Act, a district court has the discretion to grant a preliminary injunction to preserve the status quo pending the arbitration of the parties’ dispute if the enjoined conduct would render that process a “hollow formality.” The arbitration process would be a hollow formality where “the arbitral award when rendered could not return the parties substantially to the status quo ante.” Lever Brothers, 554 F.2d at 123.”

Therefore, Maryland courts are permitted to intercede and grant injunctive relief in spite of an arbitration clause where the absence of such relief would cause the arbitration to be nothing more than a “hollow formality.”
This power exists even when a contractual provision states that the parties must refer all disputes to arbitration.

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