Noncompete, Non-solicitation and Non-Disclosure Contracts

In today’s competitive business landscape, protecting your company’s confidential information, customer relationships, and intellectual property is critical. This is where Noncompete, Non-solicitation, and Non-disclosure agreements (NDAs) come into play. At Fox & Moghul, we specialize in drafting and enforcing these contracts to safeguard your business from unfair competition and ensure that your employees, partners, and contractors respect your proprietary interests.

What is a Noncompete Agreement?

A noncompete agreement is a contractual clause that restricts an employee or contractor from starting a competing business or working for a competitor for a specific period, within a defined geographic area. These agreements are common in industries where protecting trade secrets and proprietary knowledge is critical to maintaining a competitive advantage.

Key Elements of Noncompete Agreements in Virginia

Noncompete agreements in Virginia must meet several criteria to be enforceable. Courts will evaluate whether:

1. The restriction is necessary to protect a legitimate business interest, such as protecting confidential information or customer relationships.
2. The terms are reasonable in terms of the scope of the restriction, geographic area, and duration. Virginia courts often uphold noncompetes with a two-year limit but may allow variations depending on the specific circumstances.
3. The agreement does not violate public policy, meaning it does not unduly restrict the employee’s ability to earn a living.

For example, in Home Paramount Pest Control v. Shaffer, the Virginia Supreme Court found that a noncompete agreement was overly broad because it prohibited a former employee from participating in the pest control industry in any capacity, even as a passive investor. This type of overreach can make a noncompete unenforceable​.

Enforceability in Virginia Courts

In Virginia, courts closely scrutinize noncompete agreements, ensuring they balance employer protection and employee rights. The burden is on the employer to demonstrate that the restrictions are reasonable, considering:

• Duration: A typical restriction lasts one to two years, depending on the industry.
• Geographic Scope: The restriction must be limited to areas where the employer actually conducts business.
• Scope of Restricted Activities: The restriction must be limited to the type of work the employee performed during their employment.

Non-solicitation Agreements

A non-solicitation agreement prevents employees or contractors from soliciting the company’s clients, customers, or employees after leaving the business. These agreements are crucial for businesses that rely heavily on client relationships and proprietary client lists.

Scope and Enforcement of Non-solicitation Agreements

Non-solicitation agreements often focus on:

• Preventing former employees from poaching clients they had direct contact with during their employment.
• Restricting recruitment of current employees to work for a competitor.

Virginia courts generally enforce non-solicitation agreements if the restrictions are narrowly tailored to protect legitimate business interests and do not prevent former employees from earning a livelihood. For example, in Management Concepts, Inc. v. Kraemer, the court upheld a two-year non-solicitation clause that restricted contractors from servicing the company’s customers, as it was deemed reasonable and necessary to protect the company’s client base.

Non-Disclosure Agreements (NDAs)

A non-disclosure agreement (NDA) is a contract that prohibits individuals or entities from sharing confidential information or trade secrets obtained during their relationship with your business. NDAs are essential for businesses that handle sensitive data or proprietary information, as they help prevent intellectual property theft and data breaches.

At Fox & Moghul, we draft NDAs that protect all types of proprietary information, including:

• Trade secrets: Formulas, processes, and methods.
• Client lists: Ensuring that former employees do not use this information to compete against the company.
• Business plans and financial data.

Virginia Case Law on Restrictive Covenants

Virginia courts have upheld and invalidated various restrictive covenants based on their scope, duration, and reasonableness. For example:

Duration – Reasonable Durational Restriction vs Unduly Harsh & Oppressive.

• 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.

Restricted Activities – 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.

These cases demonstrate the need for precision in drafting noncompete and non-solicitation agreements. At Fox & Moghul, we ensure that these contracts are tailored to your business needs while remaining enforceable under Virginia law.

Why Choose Fox & Moghul for Your Noncompete, Non-solicitation, and NDA Needs?

At Fox & Moghul, we have extensive experience drafting and enforcing Noncompete, Non-solicitation, and Non-disclosure agreements that protect businesses across various industries. Our team of legal experts understands the nuances of Virginia law and ensures that your contracts are enforceable and effective in preventing unfair competition.

In addition to our legal expertise, we regularly share insights and updates on restrictive covenants via our Instagram channel:

• Understanding Noncompete Agreements
• Protecting Your Business with NDAs

Contact Us Today for Expert Legal Guidance

If you need help drafting or enforcing a noncompete, non-solicitation, or non-disclosure agreement, contact Fox & Moghul today. Our experienced attorneys will work with you to create tailored agreements that protect your business. Call 703-652-5506 to schedule a consultation or visit our website for more information.