Virginia courts will look at these rules when deciding whether to uphold a non-compete agreement.
There are a variety of ways in circumstances in which a noncompete clause could find its way into a Virginia contract. However, the most common by far is the employment situation. As such, I will refer to employer and employee throughout this article. The party who is attempting to enforce the non-compete agreement bears the burden of proving that:
Legitimate Business Interest
In Virginia, there is no bright line definition of a “legitimate business interests.” Instead, the burden is placed on the employer to show that they in fact have a legitimate business purpose in enforcing the non-compete provisions. As an example, imagine that Simon is a small business owner in Richmond. All of Simon’s clients come from on from Richmond, Henrico County and Chesterfield County. I do not think that a Virginia court would find that Simon has a legitimate business interests in the Virginia Beach market. Also, you need to consider whether the types of businesses or clients they serve are even similar.
Is the non-compete clause unduly burdensome to the employee?
We do not want to lock employee out of their right to earn a living. Therefore, the courts will consider the function, geographical scope and duration of the non-compete agreement. These elements will be considered together in unison. I cannot stress enough that this is an extremely fact-specific inquiry the court must make. Function refers to the job title and former duties of the employee. Geographic scope refers to the mileage or area to which the agreement refers. Duration refers to the period of time in which the employee must abide by the terms of the non-compete agreement. Obviously, this type of agreement cannot be enforced for a lifetime. At this time, it is important to note that a court will not re-write a non-compete agreement for the parties. If the agreement is overly broad or has vague terms, it will most likely fail and the employee will be free to do as they please.
Is the non-compete agreement against public policy?
Virginia law favors competition. We do not want one vendor gaining a monopoly over an entire market. Also, the public has a strong interest in allowing a person to earn a living. As you can see, each prong of the three-pronged test tends to intertwine with the other parts. Oftentimes, courts decide cases on one of the first two prongs and do not get to the public-policy part. Just remember that competition is good for Virginia consumers and we do not want someone becoming destitute because they cannot work for a living. In addition, a court will not enforce a non-compete agreement where the subject is illegal activity.
Remember, non-compete agreements are extremely fact-specific.
As you scrutinize your own non-compete agreement, just remember that the terms must be clearly defined and meet the requirements of the three-pronged test above. I know you are probably looking for a clear and fast rule, but these non-compete cases are extremely fact-specific. They decision depends on the unique set of facts more than many other areas of the law. I wish you much success in all of your endeavors.
Ryan C. Young | Richmond, Virginia | Contract Law | Non-compete Agreements