On April 24, 2024, Maryland adopted a new law that expands Maryland’s restrictions on employee noncompetes and conflict of interest provisions with veterinarians, veterinarian technicians, and certain other licensed health care providers. Currently, Maryland prohibits noncompetes for employees earning under 150% of the current minimum wage, so this new law will significantly expand the universe of employees in Maryland who cannot be bound by a noncompete.
Effective June 1, 2024, the Noncompete and Conflict of Interest Clauses for Veterinary and Health Care Professionals and Study of the Health Care Market statute deems an employment agreement null and void under Maryland law for any employee that is licensed in Maryland as a veterinary practitioner or veterinary technician. Additionally, for employment agreements executed on or after July 1, 2025, licensed health care professionals providing direct patient care (including, for example, physicians, dentists, psychologists, optometrists, pharmacists, nurse practitioners, and nurses) and earning less than $350,000 annually may not be subject to a noncompete or conflict of interest provision. Employees earning more than $350,000 annually may be subject to a noncompete or conflict of interest provision, however, any restriction may not exceed one year from the last day of employment and the geographical restriction may not exceed 10 miles from the employee’s primary place of employment.
Notably, the new Maryland law does not apply to non-solicitation or confidentiality agreements. It also does not appear to apply to noncompetes entered into by sellers in connection with the sale of a business.
The law also provides that upon request of a patient, an employer must provide notice to the patient of the new location where a former employee subject to the law will be practicing.
Finally, the new law requires the Maryland Health Care Commission (MHCC) to engage a private consultant to study specified topics related to the health care market in Maryland, including the effect of private equity firms on the health care market in Maryland, the payor mix for physician practices and groups with private equity ownership, and the impact of hospital consolidations on physician practices. It also requires the study of the acquisition of physician practices and the impact on the ability of nonprofit hospitals and health systems to maintain access to care, including their ability to hire and retain physicians. The MHCC’s findings and recommendations are due to Maryland’s Senate Finance Committee and the House Health and Government Operations Committee no later than January 1, 2025.
Maryland is just the latest jurisdiction to take action against noncompetes. As our firm previously covered, the Federal Trade Commission (FTC) recently issued its final rule broadly prohibiting employee noncompetes except for employees who earn more than $151,164 annually or who are in policy-making positions for their organization. The new rule is already facing legal challenges, including about whether the FTC has the power to enforce it.
The passage of this new Maryland legislation further illustrates the necessity that health care providers in Maryland (and elsewhere) have to continue to closely monitor both state and federal regulations and the impact such laws may have on their operations and ability to enter into restrictive covenants with their employees.
While the Maryland law only directly applies to employees, it is also important that health care providers consider with their counsel and other advisors whether the FTC rule, state legislation, and related litigation could potentially apply in other contexts, such as joint ventures. Because of the increased focus at both the federal and state level on noncompetes, health care providers should audit their employment agreements and restrictive covenant agreements, as well as their operational practices, to ensure they are in compliance with any new applicable legislation.
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