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Employee Non-compete Held Unenforceable-Ecology Serv. v. Clym

Employee Non-compete Held Unenforceable by Maryland Appellate Court

In a reported opinion issued July 7, 2008 in Ecology Services, Inc. v. Clym Environmental Services, LLC, the Maryland Court of Special Appeals further clarified the enforceability of restrictive covenants in employment under Maryland law. 

In reviewing the written agreement in question the Court determined, per Budget Rent A Car of Wash., Inc. v. Raab, 268 Md. 478 (1973), that when the covenant is reasonable as to time and space, factors for determining enforceability are whether:

(1)   the services of the employee are unique;

(2)   the covenant is necessary to prevent solicitation of customers or use of trade secrets;

(3)   enforcement is necessary to prevent exploitation of personal contacts between the employee and customers of the employer;

(4)   enforcement would impose undue hardship on the employee; and,

(5)   the public interest.

Ecology Services held two contracts with the National Institutes of Health.  When one of the contracts was coming to an end, as a government contract, it was reissued for competitive bid.  Ecology Services could not bid on the contract as it did not qualify (small business).  Clym Environmental Services won the bid process and obtained the contract.  Later the second contract went to bid.  Ecology Services was permitted to bid but the contract was awarded to Clym Environmental Services.

Several Ecology Services employees went to work for Clym Environmental Services continuing the same work they had previously been performing for Ecology Services. 

Ecology Services filed suit to enforce a written contract signed by its former employees including covenants of non-competition and non-disclosure.  The trial court granted summary judgment in favor of the defendant employees noting noted that “(1) neither appellant nor appellees contested the reasonableness of the limits or duration of the non-competition covenants; (2) appellees Raymond, Eubanks, Volkert and Neloms were “clearly low level employees not utilizing skills against whom covenants not to compete could be enforced,” and while appellant “allege[d] they possess unique skills[,] no factual basis for this allegation ha[d] been demonstrated;” (3) the activities of the appellee-employees did not involve “the solicitation of customers, private customer lists, or assigned routes which involve solicitation of customers,” and no facts were presented to support appellant’s allegation that appellees used trade secrets in their employment with appellant; (4) “[b]ecause of the nature of [the appellee-employees’] services,” there was “no exploitation of personal contact between employee and the customer (NIH)[;]” (5) enforcement of the covenants against appellees “would constitute an undue hardship on them;” and “the public interest would not be served by the enforcement of the covenants[;]” and (6) appellant had “failed to articulate the unique nature of the services these workers perform or the trade secrets which they allegedly possess.”.  Opinion at p.11. 

The Court of Special Appeals, finding no error, affirmed the trial court’s decision.

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