by G. Wythe Michael
We are often asked to draft non-competition and non-solicitation agreements on behalf of various companies and physician practice groups. We also review non-competition and non-solicitation agreements on behalf of executives and physicians. Many of our clients have a belief that these types of restrictions are invalid or even illegal. However, in Virginia, unlike many other states, employee non-compete and non-solicitation agreements are enforceable if the restrictions are reasonable in scope, necessary to protect an employer’s legitimate business interests and are not against public policy. Below is a short summary of how Virginia treats non-compete and non-solicitation agreements.
Determining Non-Compete Enforceability in Virginia
Virginia courts typically focus on the following three factors to determine whether a non-compete will be enforced:
- What is the duration of the restriction? Generally a restriction lasting more than 2 years will be deemed unreasonable.
- What is the geographic range of the restriction? The geographic range must closely correspond to the geographic area where the employer actually conducts business.
- What is the scope and extent of the activity being restricted? This factor is often the most difficult part of the analysis. The employer must have a legitimate business interest in prohibiting the type activity restricted. If the type of activity restricted is overly broad, the court will not enforce the non-compete.
Typically courts will analyze all three factors at the same time and give equal weight to each factor. Each non-compete agreement will be judged based on its own merits including the circumstances of the employee and the business and other underlying facts. In addition, the employer bears the burden of proof in establishing reasonableness.
Potential Non-Compete problem areas
Virginia has several traps for the unwary:
- Virginia courts will not enforce a non-compete that restricts an employee from working in any capacity for a competitor. To be enforceable, the non-compete must be limited to the type of activity that could harm the employer. For example, Oracle would not be able to prohibit a software salesperson from simply working for SAP since this would also prohibit the salesperson from working for SAP as a janitor, chef, delivery driver, etc. Instead, the restriction can only prohibit the salesperson from working for SAP as a software salesperson or in a role that is otherwise competitive to Oracle.
- Virginia courts do not recognize the “blue pencil rule.” In Virginia, if a court finds that a non-compete is unenforceable, the court will not modify the language to create a reasonable restriction. Instead, the entire non-compete will be thrown out. Therefore, when drafting non-compete agreements, most Virginia lawyers are conservative in drafting the restrictions. It is much safer to err on the side of a more limited non-compete than be in a position of defending a borderline non-compete that could be completely disallowed.
Sometimes employers operate in multiple states or have employees who reside in multiple states. In those situations, we typically work with the lawyers in our Primerus network of firms across the county and the world to ensure that the non-compete has the best chance to be upheld in other states or countries.
Please let us know if we may assist in the preparation or review of a non-competition or non-solicitation agreement.
A modified version of this article was published in Hampton Roads Physician Summer 2018 issue.
This blog is made available by Goodman Allen Donnelly for general information, and does not constitute legal advice. By reading this blog, you understand that there is no attorney-client relationship between you and the firm. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.