By Tim Faith, Esq.
The one year post-termination and five mile radius provisions of the non-competition agreement between Plaintiff and Krone was enforceable under Maryland law as a narrowly tailored restrictive covenant that protected a legitimate interest of the Plaintiff as to its clients.
Opinion By: J. Hollander
Andrew J. Krone (“Krone”) was a former employee of Waypoint Consulting, Inc. (“Plaintiff”) who was subject to a covenant to not compete, and left to work for a competitor to Plaintiff, Capital Rock Financial, LLC (“Capital Rock”). Plaintiff alleged that Krone misappropriated Plaintiff’s trade secrets in going to work for Capital Rock.
Krone began working for Plaintiff in 2009, and entered into a written Employment Agreement with Plaintiff in 2010, which contained a non-competition provision in paragraph 9 which provided that Krone would not, for a year after termination for any reason, engage in any similar business to Plaintiff within 20 miles of the Naples, Florida office, and during that same period, not “perform or render services … for any customer or client of [Plaintiff] for which [Krone] has performed any services…” This provision did not include clients serviced by Krone prior to joining Plaintiff’s employment. Later that year, the parties amended the agreement and reduced the non-compete area to 5 miles from the Naples, Florida office.
In 2019, Krone left employment for Plaintiff and began work for Capital Rock as a financial advisor. Following his departure, a total of 29 clients of Plaintiff terminated their relationship with Plaintiff, and 19 of those became Capital Rock clients. After his departure, Plaintiff’s attorney sent several letters demanding that Krone abide by the terms of the non-competition provision, and not solicit former clients to “jump ship” and become Capital Rock clients.
Under Maryland law, a restrictive covenant may be enforced if (1) the employer has a legally protected interest, (2) the restrictive covenant is no wider in scope and duration than is necessary to protect the employer’s interest, (3) the covenant does not impose an undue hardship on the employee, and (4) the covenant does not violate public policy. The court found that there was a legally protected interest of Plaintiff in protecting its interest in its clients, even though Plaintiff subsequently sold its book of business and is now barred for five years from providing such services pursuant to an asset sale agreement that contained a non-competition clause with the purchaser. The court then reviewed whether the restrictive covenant was narrowly tailored to protect this business interest and found that Krone was only restricted from soliciting clients with whom he or a subordinate had had contact with while working for Plaintiff, concluding that the covenant to not compete was enforceable against Krone.
However, Plaintiff also sought judgment on the basis of a nondisclosure agreement with Krone which the court found to be overly broad because the class of information subject to nondisclosure far exceeded the definition of a “trade secret” under the Maryland Uniform Trade Secrets Act to include nearly any information within Plaintiff’s possession. As a result, the court entered judgment for the defendants as to the overly broad nondisclosure provision on the agreement.
Plaintiff had also sought judgment for Krone’s failure to provide thirty days notice of his intention to terminate his employment, as Krone’s resignation was effective immediately, and the court found that this failure to abide by this provision may have frustrated Plaintiff’s efforts to retain relationships with clients serviced by Krone. As a result, the court granted judgment to Plaintiff on this issue.
Tim Faith is a practicing business law and estates planning attorney, and also an associate professor at The Community College of Baltimore County, where he teaches business law, legal writing, and torts. Tim also serves as the chair of the Maryland Business Law Developments blog, a service of the Business Law Section of the Maryland State Bar Association.