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Does your Business use Employee Noncompete Agreements?

The legal issues related to employee “non-competes” (also known as covenants not to compete or non-competition agreements) are often not well understood by employees subject to them, the companies insisting upon them, or the companies intending to hire persons subject to them.  That may well be especially true in the Commonwealth of Virginia where one frequently hears, “That agreement is so broad it will never be enforced and Virginia doesn’t ‘blue pencil’ these agreements, so no problema.”

True enough, Virginia courts generally do not enforce unduly broad or overreaching employee agreements not to compete because they are contrary to the public policy of the Commonwealth of Virginia.  Such agreements are “disfavored in the law” and are strictly construed by Virginia courts.  Why?  Because covenants not to compete are frequently coerced from employees in exchange for the “privilege” of working for the employer, never mind the employee is providing services to the employer and does not usually receive any separate consideration, or payment, for giving the non-compete. Further, they are disfavored because they are restraints of trade that affect the employee’s ability to earn a livelihood, restrict others from obtaining the employee’s services, and deny the public the benefit of such services.

Employee non-competition agreements are enforceable in Virginia where the agreements (1) are narrowly drawn to protect the employer’s legitimate business interest, (2) are not unduly burdensome on the employee’s ability to earn a living, and (3) are not against public policy.   Further, Virginia courts, unlike the courts of some states, will not rewrite, or “blue pencil,” them to make them enforceable.

Whether a non-competition agreement is unduly broad or is unduly restrictive of an employee’s ability to earn a living is fact based.  Generally, however, where the restricted geographic boundary, occupational limitation or time limitation extends beyond any legitimate employer interest, or where the agreement prevents all or substantially all employment in the employee’s field of endeavor within a reasonable geographic area, the non-competition agreement will generally not be enforced.

Where Virginia courts find covenants not to compete enforceable, they will use their injunctive power to keep employees and prospective employers from violating them.  Further, they will enforce liquidated damage provisions for breach of contract where the actual damages contemplated at the time of the agreement are uncertain and difficult to determine with exactness and where the amount fixed is not out of all proportion to the probable loss.  Finally, Virginia courts will enforce choice of law clauses where such clauses are not unconscionable.

Enforceability is not the end of the matter, however, either for the employee subject to the agreement, the company to which the duty not to compete is owed, or the prospective employer of such an employee.  There are many more issues potentially seriously affecting the employer, the employee, and the prospective employer.  These involve general contract law, duties of good faith, fair dealing and loyalty, tortuous interference with contract and business expectancy, common law and statutory conspiracy, and trade secret law.  Thus, employees with non-competition agreements and employers who seek to employ them are well advised to seek legal counsel as to the potential issues and ramifications that are fact specific to the employee and the prospective employer.

We have provided a much fuller analysis of non-competes in the Tarley Robinson Library. Check it out!

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

Republished by Blog Post Promoter

Neal Robinson

Neal specializes in corporation and business entity law, mergers and acquisitions, business planning and strategic analysis. His clients have ranged from start-up operations to well established organizations.

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