Maryland restricts noncompete and conflict of interest provisions for veterinary and healthcare professionals

Pursuant to HB 1388, which passed the Maryland General Assembly on April 6, 2024 and is awaiting signature by Governor Wes Moore,[1] noncompete and conflict of interest provisions in employment contracts for certain veterinary and healthcare professionals will be barred or restricted.  Introduced by Delegate Terri L. Hill, along with bipartisan co-sponsors, the bill ushers in a new era for employment contracts as certain provisions as applied to specified licensed professionals now will be either unenforceable or materially limited under Maryland law.

Entitled Noncompete and Conflict of Interest Clauses for Veterinary and Health Care Professionals and Study of the Health Care Market, HB 1388 amends the Annotated Code of Maryland’s Labor and Employment Section 3-716(a).  This amendment expands the application of provisions of current law providing that a noncompete or conflict of interest provision is null and void under State law to an employment contract for an employee that is required to be licensed under the Health Occupations Article or as a veterinary practitioner or veterinary technician.  Under this legislation, employment clauses that impede an employee’s ability to seek subsequent employment or venture into self-employment will no longer be enforceable.  The implications of HB 1388 for veterinary and healthcare-related employers are considerable.  Effective as of June 1, 2024, noncompete and conflict of interest provisions will be banned for employees licensed as veterinary practitioners or veterinary technicians under Title 2, Subtitle 3 of the Agriculture Article.  

Moreover, effective as of July 1, 2025, noncompete and conflict of interest provisions for employees licensed under the Health Occupations Article (eg, doctors, nurse practitioners, nurses, midwives, dentists, pharmacists, psychologists, optometrists) and providing “direct patient care” will be either (i) banned for professionals earning “total annual compensation” of $350,000 or less (Compensation Threshold) or (ii) materially limited for professionals earning more than the Compensation Threshold.  With respect to this latter group, noncompete provisions will be unenforceable if they have a (i) restricted period of more than one year or (ii) geographic limitation greater than 10 miles from a professional’s primary place of employment.  Finally, the bill also mandates a new requirement for employers to inform patients when a healthcare professional subject to these restrictions shifts to a new practice location. 

Notably, in an effort to delve deeper into the state’s healthcare market dynamics, the bill requires the Maryland Health Care Commission to contract with a private consultant to study the effect of private equity firms on the healthcare market in the state.  These so-called “summer studies” sometimes set the stage for additional or modifying legislation; but they also signal that the House Committee was not yet willing to take on a related but significant ancillary industry.  On or before January 1, 2025, the Commission shall report findings and recommendations, such as the payer mix for physician practices and groups with private equity ownership and the impact on the ability of nonprofit hospitals and health systems to maintain access to care, including the ability to hire and retain physicians.

In response to the legislation, several state medical societies submitted their support for HB 1388, stating the bill will build incentives for employers to better workplace conditions and wages for workers and improve the shortage of physicians.  However, opponents note the disadvantages of invalidating certain noncompete agreements in the healthcare industry.  The Maryland Hospital Association submitted testimony that noncompete agreements “create necessary assurances for hospitals and their clinicians” and “help protect intellectual property, trade secrets, and competitive advantages.”

Maryland’s overhaul follows a nationwide trend to restrict noncompetes in order to promote greater worker mobility. Some states have promulgated laws targeting noncompetes in particular sectors, while other jurisdictions seek to limit noncompetes more broadly. Washington recently amended its noncompete law to impose additional obligations on employers and more bills are pending, including in New York City. For more information about noncompete restrictions, including the Federal Trade Commission’s final rule on noncompetes expected this spring, see our prior alerts, “What US employers should know about noncompetes in 2024” and “Noncompetes around the world: Top issues and strategies for global employers.” 

If you have questions about developments related to restrictive covenants and the best approach for your business, please contact any of the authors or your DLA Piper relationship attorney.

[1] Currently pending at the federal level is an FTC rulemaking proposal that would ban noncompetes nationally. That proposed rule, however, would not apply to not-for-profit entities, ie, many healthcare facilities. This bill is Maryland’s attempt to fill that gap.