In general, under Maryland law a non-competition agreement in an employment contract that is supported by adequate consideration (typically employment) and is ancillary to the employment contract will be upheld if the restraint is properly limited in area and duration, is reasonably necessary to protect the employer’s business interest, and does not impose undue hardship on the employee or disregard the interests of the public. “Whether the duration of a covenant not to compete is reasonable depends on the facts of a particular case and the interest of the employer sought to be protected.” A court will determine the enforceability of a non-competition agreement based upon the particular facts of each case. “It is well established that where a restrictive covenant is bargained for in exchange for employment, the employment will be sufficient consideration for such an agreement.” A non-competition agreement will be enforced only against employees who provide unique services, or to prevent future misuse of an employer’s trade secrets or solicitation of customers. Maryland courts will also review terms including geographical limitations, time limitation, and scope of the limitation in determining the reasonableness and enforceability of the restraint.
Accountants often have personal connections to their clients due to the nature of their practice. When an accountant leaves his place of employment, it is not uncommon to have clients who desire to continue business with the accountant.
In Holloway, Holloway, a partner at an accounting firm, voluntarily withdrew his employment. Holloway had signed a partnership agreement which contained a non-competition clause the prohibited a withdrawing partner from engaging in the general practice of accounting individually or with any firm at any place within a forty mile radius of any of the firm’s offices for a period of five years. Additionally, if a withdrawing partner engaged in this activity, he would be required to pay the firm 100% of the prior year’s fee for any clients that belonged to the firm. The court recognizes that an accounting firm has a legitimate and protectable interest in the ongoing business relationship it has established with its clients. Holloway argued the restrictive covenant was against public policy and that accountant-client relationships should be given equivalent recognition as attorney-client relationships. The court determined that the fee equivalent remedy combined with the non-competition clause allowed Holloway to compete against the firm for any other account other than the firm’s clients. The agreement provided the firm with a remedy in the instance Holloway did compete with the firm by requiring Holloway to purchase that account from his former firm. The court determined these terms tied the restriction narrowly to the firm’s interests in its client base and only limited Holloway from soliciting to that client base. The court determined the clause was reasonable and enforceable. There was no geographical limitation required because the agreement only restricted Holloway’s access to the firm’s clients.
When drafting a non-competition agreement, as shown by Holloway, it is in an accountant’s best interest to draft a non-competition clause that restricts a withdrawing partner or employee only from soliciting to clients of the former firm. This way, a court will likely construe the provision to be narrowly drafted to protect the firm’s legitimate interests. This way, the agreement would not limit the former employee from earning a living elsewhere. Further, in order to protect their interests in drafting a clause in this way, a firm can include a liquidated damages clause to provide it with a remedy in the event the former employee solicits to the firm’s clients. An overly broad restriction is not narrowly tailored to protect an employer’s business interests. In order to remain in the realm of enforceability, an employer should limit the employee or partner’s restrictions to specific activities that the individual performed while employed with the firm. Non-competition agreements cannot encompass activities that the employee did not engage in under the employer’s employment. To restrict activities outside of the employee’s performance is not considered to be narrowly tailored to the employer’s business interests and may prevent the employee from earning a living elsewhere.