Many businesses use “noncompete clauses” or “noncompete agreements” (referred to hereafter as “NCCs”), which are legally described as covenants (or promises) not to compete, in employment agreements. NCCs can be broad or narrow in their scope. And, they may have various contingencies attached as to when they apply or do not apply. Because NCCs are the product of negotiations – at least in theory – they can vary considerably from contract to contract, even within the same field of business or employer.
Too often, potential employees do not carefully review or consider the NCCs that become a part of their employment agreement with their employer. This is all too often the result of wishful thinking, because NCCs only become effective after a person leaves their employment. Employees who have landed a job in their field of choice are often placated either by their employer or their own thinking and assume they are going to be with that employer forever. But, when the relationship turns sour, the NCCs become a huge problem.
Is This Noncompete Clause Enforceable?
Because not all NCCs are created equal and because businesses are not all created equal, there is no hard and fast rule as to when NCCs are enforceable. In Virginia, courts are required to look at NCCs on a case-by-case basis. In doing so, they have to follow several general rules. First, they must construe the NCC against the drafter of the clause; any ambiguity in an NCC must be read in favor of the employee. Additionally, the employer bears the burden of proving the NCC is reasonable.
When is a Noncompete Clause Reasonable?
In assessing reasonableness, the Virginia Supreme Court has requires courts to look at three key factors.
- First, “the employer bears the burden to show that the restraint is no greater than necessary to protect a legitimate business interest.” Modern Env’Ts v. Stinnett, 263 Va. 491, 493 (2002).
- Second, the NCC cannot be “unduly harsh or oppressive in curtailing an employee's ability to earn a livelihood.” Id.
- Third, the NCC must be “reasonable in light of sound public policy.” Id.
Cases dealing with specific NCC clauses have looked to the geographic restraints, length of the restraint, and what types of activities are prohibited by the NCC to determine whether an NCC is enforceable.
While the Supreme Court and lower courts in Virginia routinely state that NCCs are “not favored” in the law, they are still enforced and enforceable when they are reasonable in the context of the employer-employment relationship. Any employee who has left a job and is subject to an NCC has the potential to escape it if it is too broad. Moreover, it would be wise for such employee to seek a declaratory judgment on the issue of the enforceability of the NCC before taking action that may breach that agreement. Otherwise, they may face injunctions that prevent them from continuing to work as well as money damages as a result of their breach of the NCC.
If you need advice on whether your NCC is enforceable and seeking relief from it, contact the experienced attorneys at Greenspun Shapiro for an evaluation and discussion of the NCC and your rights.