VIRGINIA NONCOMPETE AGREEMENTS – WHAT TO LOOK OUT FOR BEFORE SIGNING ONE.
Simply stated, a non-compete agreement, covenant not to compete or restrictive covenant is a contractual agreement between two parties that restricts one parties rights under a particular factual scenario. For example, in the employment context, an employer provided non-compete will seek to restrict an employees’ ability to start a similar trade or profession upon leaving the current employer. Employers use such agreements to protect their business asserts, namely trade secrets, ideas, and business practices with their employees, partners, and contractors, so that former are not able to use the information they learned during employment to start their own businesses and become a competitor.
Virginia Non-Compete Elements Overview
In determining whether a noncompetition agreement is valid and enforceable, the courts apply the following criteria:
- From the perspective of the employer, is the restraint reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?
- From the perspective of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?
- Is the restraint reasonable from the standpoint of a sound public policy? (see Paramount Termite Control v. Rector, 238 Va. 171, 174 (1989); New River Media Group, Inc. v. Knighton, 245 Va. 367, 369 (1993)).
To enforce a non-compete covenant in court, the burden is on the employer to show that the terms of the non-compete are valid. In evaluating these factors, the court considers the (1) breadth of the activity being restricted, (2) geographic scope, and (3) duration of the restriction (Home Paramount Pest Control Cos. v. Shaffer, 282 Va. 412, 415 718 S.E.2d 762, 764 (2011).
Duration – Reasonable Durational Restriction vs Unduly Harsh & Oppressive.
Generally, under Virginia law, a durational limit of up to 2 years is considered reasonable, although the courts may permit variations on that time line depending on the circumstances of the case.
Case Law Examples
- James Ltd. v. Saks Fifth Ave., Inc., 67 Va. Cir. 126 (Arlington, 2005) (upholding a three year, one-mile non-compete)
- Simmons v. Miller, 261 Va. 561, 544 S.E.2d 666 (2001) (held, a three year non-compete restriction while not unreasonable per se, was more lengthy than necessary because the agreement did not specify what type of activities were restricted. It merely states that “Employee shall not directly or indirectly, own, manage, control, be employed by, participate in, or be connected in any manner with ownership, management, operation, or control of nay business similar to the type of business conducted by Employer…”
- Management Concepts, Inc. v. Kraemer, No. 1822547 (Fairfax Cir. Ct. Apr. 26, 2004) – held that the two year restrictive covenant prohibiting the independent contractors from servicing company’s customers was reasonable and not unduly restrictive.
- Anteon Corp. v. BTG Inc., 62 Va. Cir. 41 (Fairfax 2003) (an arbitrator’s award that contractor was “permanently enjoined from interviewing, offering employment to, hiring, or otherwise soliciting” the subcontractor’s employees. On appeal, the restriction was held to be against public policy of Virginia because it was an invalid restraint on trade “in perpetuity.”
- Home Paramount Pest Control Cos. v. Shaffer, 282 Va. 412, 418, 718 S.E.2d (2011) (holding a restrictive covenant overbroad – and hence unenforceable — because it prohibited any involvement, even as a passive investor, in the pest control business).
Geographic Scope – Case Law Examples
- Advanced Marine Enterprises, Inc. v. PRC, Inc., 256 Va. 106, 501 S.E.2d 148 (1998) – the Virginia Supreme Court upheld a non-compete clause preventing former employees of the defendant from “rendering competing services to” or “soliciting any customer” of plaintiff within a 50 mile radius. Despite the defendant company’s global reach with 300 offices, the Court found this restriction reasonable.
- Tradestaff & Co. v. Lee., 2004 WL 1355253 (City of Norfolk Cir. Ct. May 27, 2004) – court upheld a non-compete agreement prohibiting former employees of a construction staffing service from engaging in a business of providing labor personnel to construction companies in Virginia and other states where employer provides labor.
- New River Media Group, Inc. v. Knighton, 245 Va. 367, 368 (Va. 1993) – the court held that a disc jockey who would not engage in business that competed with his employer for a period of 12 months within 60 miles of the broadcast station was valid.
- Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369 (1990) – three year restriction from being employed by or acting on behalf of any competitor providing same or similar services held to be valid.
The type of activities restricted by the non-compete agreement are carefully scrutinized by the courts. As a general rule of thumb, in order to pass legal muster the restriction must be closely tied to the work that the employee was performing for the employer and not so broad as to bar the employee from pursuing any work in the particular industry.
Case Law Examples
- Modern Environments, Inc. v. Stinnett, 263 Va. 491 (2002) – the court invalidated the restriction because it did not specify what type of activities the employee was prohibited from pursuing.
- Roanoke Eng’g Sales Co. v. Rosenbaum, 223 Va. 548, 553 (1982), the court held that the non-competition covenant was reasonable because the employment restriction was limited to activities similar to business conducted by former employer.
- Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369 (1990), the employer was a medical equipment vendor. The court upheld a provision that prohibited employees from “opening or being employed by or acting on behalf of any competitor of employer which renders the same or similar services.” However, that provision included explicit language allowing employees to “work in the medical industry in some role which would not compete with the business” of the employer. The court noted that “the former employees…are only prohibited ‘from working in the medical industry in some role which would . . . compete with the business’” of the employer.
- Omniplex World Servs. Corp. v. US Investigations Servs., 270 Va. 246, 249 (2005), the court observed that valid provisions prohibit “an employee from engaging in activities that actually or potentially compete with the employee’s former employer”. But a former employee may find new employment with his former employer’s competitor in which he engages exclusively in activities that do not compete with the former employer.
Please contact us at Fox and Moghul for more information on this issue. You may also want to read the section on Injunctions and TRO’s as these legal remedies are often a primary consideration in cases where a noncompete agreement has been violated. Please call the firm to schedule an appointment on your issue
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