Some of the most damaging business disputes do not involve a contract between the parties at all. They involve a third party, often a competitor, a former employee, or a former business partner, who takes something the business depended on. Common examples include:

• A sales executive resigns, joins a competitor, and key accounts follow within weeks
• A competitor persuades a customer or supplier to break a contract with your company
• A group of employees leaves together to start or join a competing business
• A former partner diverts customers or opportunities to a new company
• A competitor spreads false statements about your company to win business

Owners in these situations often ask the same first question: “We never had them sign a non-compete. Can we do anything?” The answer is often yes. A non-compete is only one source of protection. Maryland law also provides tort claims for wrongful interference, imposes a duty of loyalty on current employees, and protects trade secrets by statute. Our posts on non-compete agreements and trade secret misappropriation cover those protections. This post focuses on the claims available beyond them.

The Supreme Court of Maryland (then the Court of Appeals) explained in Barclay v. Castruccio (2020), quoting Alexander & Alexander Inc. v. B. Dixon Evander & Associates, Inc., 336 Md. 635 (1994), that Maryland recognizes the tort of wrongful interference with contractual or business relationships in two forms: inducing the breach of an existing contract, and more broadly, maliciously or wrongfully interfering with economic relationships in the absence of a breach of contract.

The first form applies when a valid contract exists between your company and a third party, and someone outside that contract induces the third party to breach it. The Court of Special Appeals has described the elements as including the existence of a contract between the plaintiff and a third party, the defendant’s knowledge of it, the defendant’s intentional inducement of the breach, the absence of justification, a breach by the third party, and resulting damages. Brass Metal Products, Inc. v. E-J Enterprises, Inc., 189 Md. App. 310 (2009).

Examples

• A competitor knows your customer is under a fixed-term supply contract and persuades the customer to terminate early in violation of the contract
• A new employer knows that a recently hired salesperson signed an enforceable non-solicitation agreement with your company and directs the salesperson to solicit your customers anyway
• A buyer induces a seller to back out of a signed agreement with your company

A party cannot interfere with its own contract

The tort is aimed at outsiders. In Blondell v. Littlepage (2010), the Court of Appeals, relying on K & K Management, Inc. v. Lee, 316 Md. 137 (1989), and Kaser v. Financial Protection Marketing, Inc., 376 Md. 621 (2003), held that a party to a contract cannot be liable in tort for interfering with that same contract. If the company that breached is the one you contracted with, the claim is for breach of contract. See our guide on breach of contract in Maryland and Pennsylvania.

Most customer relationships are not locked in by long-term contracts. Customers buy order by order, contracts can be terminated on notice, and employees are typically at will. Interference with these relationships falls under the second, broader form of the tort, and Maryland sets a higher bar for it.

The elements

As stated in Kaser, quoting K & K Management, the claim requires: (1) intentional and wilful acts; (2) calculated to cause damage to the plaintiff in its lawful business; (3) done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendant, which constitutes malice; and (4) actual damage and loss resulting.

Wrongful or unlawful conduct is required

The critical requirement is usually the nature of the defendant’s conduct, although interference motivated primarily by actual malice, such as hatred, spite, or ill will, may also be actionable in limited circumstances; ordinary competitive motives are not enough. In Alexander & Alexander, as quoted in Barclay, the Court explained that wrongful or malicious interference with economic relations is interference by conduct that is “independently wrongful or unlawful, quite apart from its effect on the plaintiff’s business relationships.” The Court identified examples: wrongful or unlawful acts include common law torts and “violence or intimidation, defamation, injurious falsehood or other fraud, violation of criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith.”

At-will contracts are treated the same way

A contract that can be terminated at will gives less protection than one with a fixed term. Maryland courts analyze interference with a contract terminable at will as interference with economic relations generally, which means the plaintiff generally must prove wrongful or unlawful conduct, or in limited circumstances interference motivated primarily by actual malice, not just that the defendant persuaded the customer or employee to leave. The Court of Special Appeals said as much in Carter v. Aramark Sports & Entertainment Services, Inc., 153 Md. App. 210 (2003), as noted in Barclay.

The relationship must be specific

A plaintiff cannot recover for a general loss of business. In Mixter v. Farmer (2013), the Court of Special Appeals held that a plaintiff claiming interference with prospective advantage must identify a possible future relationship that was likely to occur, absent the interference, with specificity. A claim that the plaintiff “would have gotten more business” without naming the customers or contracts lost is unlikely to succeed.

Many customer-diversion cases begin while the departing employee is still on the payroll. That timing matters, because current employees owe their employer a duty of loyalty even without a written agreement.

The Maryland Metals rule

In Maryland Metals, Inc. v. Metzner, 282 Md. 31 (1978), the Court of Appeals described the duty of loyalty as an implied term “read into every contract of employment.” Two senior managers, frustrated that their employer would not invest in new equipment, spent months while still employed forming a competing company, arranging financing, optioning land, and agreeing to buy equipment, without disclosing the details to their employer. The Court held that those steps were permissible preparation. An employee may make arrangements to compete, but must refrain from actively and directly competing with the employer while still employed. Whether conduct crosses the line depends on a thorough examination of the facts and circumstances.

The Court of Appeals reaffirmed those principles in Weichert Co. of Maryland, Inc. v. Faust (2011), noting that “some latitude is given to the employee in making arrangements for future employment.” In that case, a jury found that a departing manager breached her duty of loyalty and awarded her former employer $250,000.

Conduct that commonly raises duty of loyalty concerns

• Soliciting the employer’s customers for a competing business before leaving
• Soliciting coworkers to leave for a competitor while still employed, particularly when the solicitation involves active competition with the employer, misuse of confidential information, or other conduct that exceeds permissible preparations for future employment
• Taking or using the employer’s confidential information
• Diverting business opportunities that belong to the employer
• Doing work for a competitor while still on the employer’s payroll

Conduct that is generally permitted

• Forming a new company, finding office space, and arranging financing
• Looking for and accepting another job
• After leaving, competing for customers, absent an enforceable restrictive covenant and without misusing confidential information

“Unfair competition” is often used as an umbrella term for the claims a business can bring against a competitor that took business through improper means. In practice, a Maryland case is usually built from the specific claims that fit the evidence:

• Tortious interference, discussed above
• Breach of the duty of loyalty against a former employee for conduct while employed
• Breach of fiduciary duty against a former officer, manager, or partner
• Breach of contract against a former employee who signed a non-solicitation, confidentiality, or non-compete agreement
• Trade secret misappropriation under the Maryland Uniform Trade Secrets Act and the federal Defend Trade Secrets Act
• Defamation or injurious falsehood if the competitor made false statements about your business
• Fraud if a party was induced by misrepresentations. See our guide on fraud versus breach of contract.

The trade secret displacement rule

When confidential information is involved, claim selection requires care. Under Commercial Law Section 11-1207(a), the Maryland Uniform Trade Secrets Act displaces conflicting tort, restitutionary, and other law of the State providing civil remedies for misappropriation of a trade secret. Under Section 11-1207(b), it does not affect contractual remedies, whether or not based on misappropriation of a trade secret, or other civil remedies that are not based on misappropriation of a trade secret.

The practical result is that a tortious interference or unfair competition claim that rests entirely on the theft of trade secrets may be challenged as displaced, while claims based on other wrongful conduct, such as defamation, solicitation in breach of a contract, or disloyal conduct during employment, remain available. A well-pleaded complaint separates the theories so that one does not undermine another.

Contractual protections matter

If the former employee signed an enforceable non-solicitation or confidentiality agreement, breach of that agreement may provide a strong contractual claim. A new employer that knowingly induces a breach may also face a tortious interference claim. Maryland restricts certain non-compete and conflict-of-interest provisions under Labor and Employment Section 3-716, including provisions affecting covered lower-wage workers and certain licensed professionals. However, those statutory restrictions do not categorically invalidate non-solicitation or confidentiality agreements, and Section 3-716 expressly preserves agreements concerning the taking or use of client or patient lists and other proprietary client-related or patient-related information. The enforceability of each provision depends on its language, scope, the employee’s circumstances, and applicable law. See our guide on non-compete agreements in Maryland.

In customer-diversion cases, the most valuable remedy is often an order stopping the conduct before more customers are lost. Damages awarded two years later rarely restore a customer relationship.

Temporary restraining orders

Under Maryland Rule 15-504, a temporary restraining order may be granted only if specific facts shown by affidavit or other sworn statement establish that immediate, substantial, and irreparable harm will result to the party seeking the order before a full adversary hearing can be held. The court must also make findings on the likelihood of success on the merits, the balance of harm to each party, whether irreparable injury will occur without the order, and whether the order is consistent with the public interest. An order granted without notice requires a written certification, and a finding by the court, that specified efforts commensurate with the circumstances were made to give notice. A temporary restraining order must state its expiration date, which generally may not be more than 10 days after issuance for a Maryland resident, and it may be extended once for a like period. The party against whom it is directed may move to dissolve or modify it on short notice, and the party that obtained it bears the burden of showing it should continue.

Preliminary injunctions

A preliminary injunction preserves the status quo while the case proceeds. Maryland courts weigh four factors, which the Court of Appeals described in Lerner v. Lerner, 306 Md. 771 (1986): the likelihood that the plaintiff will succeed on the merits, the balance of convenience or harm to each party, whether the plaintiff will suffer irreparable injury without the injunction, and the public interest. The Maryland Rules generally require the party obtaining a temporary restraining order or preliminary injunction to post a bond, which can be significant if the order restricts a competitor’s business.

What a court wants to see quickly

• Specific sworn facts, not conclusions: which customers, which employees, which communications, and when
• Documents showing the wrongful conduct, such as emails, forensic evidence of downloaded files, or statements made to customers
• Why money damages will not be adequate, such as the loss of customer relationships or goodwill that cannot be measured
• A narrowly drawn order that stops the wrongful conduct without barring lawful competition

A successful plaintiff may recover the damages caused by the wrongful conduct. In customer-diversion cases, the main component is usually lost profits from the customers or contracts that were taken. Maryland courts require lost profits to be proven with reasonable certainty rather than speculation, and that is where many otherwise strong cases weaken.

Common proof problems

• Causation. The defendant will argue that the customer would have left anyway because of price, service, or the departing employee’s personal relationship.
• Specificity. As Mixter illustrates, a general decline in revenue is not enough without tying it to identifiable lost relationships.
• Duration. How long the lost customer would have continued buying is often contested.
• Profit margin. Lost revenue does not equal lost profits. Recoverable lost profits generally reflect the revenue the business would have earned from the lost customers or contracts, less the costs and expenses it would have incurred to generate that revenue but avoided because the business was lost. The calculation must be supported by reliable financial records and account for the nature of the business’s expenses.

Punitive damages require proof of actual malice by clear and convincing evidence, a demanding standard. Attorney’s fees generally are not recoverable unless a contract or statute provides for them, although trade secret statutes and many restrictive covenant agreements contain fee provisions. See our post on the cost of business litigation in Maryland.

The same rules protect companies that hire from competitors. A company that receives a cease and desist letter after hiring a competitor’s employee, or after winning a competitor’s customer, often has strong defenses, but it must handle the situation carefully.

Defenses commonly available

• Lawful competition. Hiring at-will employees and competing for customers is not wrongful in itself. For at-will relationships, the accuser generally must prove independently wrongful conduct, or in limited circumstances interference motivated primarily by actual malice; ordinary competitive motives are not enough.
• No enforceable contract. A restrictive covenant may be overbroad, unsupported, or limited by Maryland law.
• No knowledge. Interference with an existing contract requires knowledge of the contract.
• No specific loss. The accuser must tie damages to identifiable relationships.
• Trade secret displacement. Tort claims resting only on alleged misappropriation may be displaced by the Maryland Uniform Trade Secrets Act.

Practical steps when hiring from a competitor

1. Ask candidates in writing whether they are bound by any non-compete, non-solicitation, or confidentiality agreements, and review those agreements before hiring.
2. Instruct new hires in writing not to bring, use, or disclose any former employer’s confidential information.
3. Do not ask a new hire to solicit former customers or coworkers in violation of an agreement.
4. If a demand letter arrives, preserve documents, investigate before responding, and avoid admissions in the first reply.

If your company has been served with a complaint, see your business has been sued in Maryland: what to do now.

The best time to protect customer relationships is before anyone leaves. A business that relies only on the duty of loyalty and tort law will usually find those protections narrower than it expected.

• Non-solicitation agreements. A reasonable agreement prohibiting a departing employee from soliciting customers or employees for a limited period is often more enforceable, and more useful, than a broad non-compete.
• Confidentiality agreements. These define what information is confidential and support reasonable efforts to protect trade secrets.
• Longer customer contracts. A fixed-term customer contract receives more protection from interference than a relationship terminable at will.
• Access controls. Limit access to customer lists, pricing, and pipeline data to employees who need it, and monitor large downloads.
• Offboarding procedures. Collect devices, disable access promptly, remind departing employees of their obligations in writing, and preserve their email and files.
• Agreements among owners. Operating agreements and shareholder agreements should address competition and solicitation by departing owners. See our guides on LLC operating agreements and shareholder agreements.

Our guide on worker misclassification also matters here, because contractor agreements require different drafting than employee agreements.

1. Preserve evidence immediately. Secure the departing employee’s devices, email account, and cloud storage before they are reassigned or wiped. Consider a forensic image.
2. Collect the agreements. Gather offer letters, non-solicitation, confidentiality, and non-compete agreements, and any customer contracts affected.
3. Identify the losses specifically. List each customer, contract, or employee lost, with dates and revenue.
4. Document what customers are being told. Statements made to customers can be evidence of defamation or other wrongful conduct.
5. Avoid self-help. Do not threaten customers, make public accusations, or withhold wages owed, which can create claims against your company. See our guide on the Maryland Wage Payment and Collection Law.
6. Assess emergency relief early. Decide within days whether a temporary restraining order or preliminary injunction is warranted.
7. Consider a targeted demand letter. A letter to the former employee and new employer can stop the conduct, but it should be accurate and measured.

• Assuming no non-compete means no claim. Interference, duty of loyalty, contract, and trade secret claims may still be available.
• Treating competition as wrongdoing. For at-will relationships, the claim generally requires independently wrongful or unlawful conduct, or in limited circumstances interference motivated primarily by actual malice.
• Suing the wrong party for interference. A party cannot interfere with its own contract.
• Waiting too long. Delay undermines a request for emergency relief and allows evidence to disappear.
• Pleading only trade secret theft as a tort. Claims based solely on misappropriation may be displaced by the Maryland Uniform Trade Secrets Act.
• Claiming general lost business. Damages must be tied to specific lost relationships.
• Overreaching in a demand letter. Groundless threats can expose the sender to claims of its own.
• Failing to protect relationships in advance. Reasonable non-solicitation and confidentiality agreements are far easier than litigation.

Possibly. Without a non-compete, a former employee is generally free to compete after leaving. But claims may exist if the employee solicited customers or otherwise competed while still employed, in breach of the duty of loyalty; breached a non-solicitation or confidentiality agreement; misappropriated trade secrets; or used independently wrongful means, such as false statements about your business, to take customers. The strength of the claim depends on the evidence of what the employee did and when.

Maryland recognizes wrongful interference with contractual or business relationships in two forms: inducing the breach of an existing contract, and more broadly, maliciously or wrongfully interfering with economic relationships in the absence of a breach of contract. For the second form, which includes interference with contracts terminable at will, the defendant’s conduct generally must be independently wrongful or unlawful, such as fraud, defamation, intimidation, violation of criminal law, or groundless litigation brought in bad faith. In limited circumstances, interference motivated primarily by actual malice, such as hatred, spite, or ill will, may also be actionable, but ordinary competitive motives are not enough.

Generally not, by itself. Hiring an at-will employee who is not bound by a restrictive covenant is ordinarily lawful competition. A claim may arise if the competitor knowingly induced a breach of an enforceable agreement, used the employee to misappropriate confidential information, or used other independently wrongful means. A coordinated departure orchestrated while the employees were still employed may also raise duty of loyalty issues for the departing employees.

Under Maryland Metals v. Metzner, an employee may take preparatory steps, such as forming a company, arranging financing, and finding a location, but must refrain from actively and directly competing with the employer while still employed. Soliciting the employer’s customers, soliciting coworkers in a way that exceeds permissible preparations for future employment, using confidential information, or diverting the employer’s business opportunities before leaving can breach the duty of loyalty. The analysis depends on the specific facts.

Possibly. A temporary restraining order under Maryland Rule 15-504 requires specific sworn facts showing immediate, substantial, and irreparable harm before a full hearing can be held. A preliminary injunction requires the court to weigh the likelihood of success on the merits, the balance of harm, irreparable injury, and the public interest. An order is most likely when there is an enforceable agreement or clear evidence of wrongful conduct, and when the business acts quickly.

No. In Blondell v. Littlepage, the Court of Appeals held that a party to a contract cannot be liable in tort for interfering with that contract. A party that fails to perform its own contract may be liable for breach of contract, but not for tortious interference.

It can. Under Commercial Law Section 11-1207, the Maryland Uniform Trade Secrets Act displaces conflicting tort and other civil remedies for misappropriation of a trade secret, but does not affect contractual remedies or civil remedies not based on misappropriation. An interference claim that rests entirely on trade secret theft may be challenged as displaced, so claims should be pleaded to reflect the distinct wrongful conduct involved.

Lost profits must be proven with reasonable certainty, not speculation. That generally requires identifying the specific customers or contracts lost, showing that the defendant’s conduct caused the loss, estimating how long the relationship would have continued, and calculating lost profits, meaning lost revenue less the costs avoided because the business was lost, using reliable financial records. A general decline in revenue, without tying it to specific relationships, is unlikely to be enough.

Preserve documents, review any agreements the new hire signed, confirm that the new hire has not brought or used the former employer’s confidential information, and investigate before responding. Avoid admissions in the first reply. Many such letters overstate the sender’s rights, particularly where the employee was at will and not bound by an enforceable restrictive covenant, but the response should be based on the facts.