A wise lawyer (one of my partners) is fond of saying “An agreement is only as binding as the integrity of the person who signs it.” Absent the integrity, the agreement will mean nothing to that person who will think nothing of turning his back on his obligation. But, this is why we have courts—to enforce agreements.
Employers sometimes ask me whether it is worth the effort and expense of having a non-compete agreement prepared and signed by key talent within their company. Rest assured, non-compete agreements are still very enforceable in Virginia. A former employee who violates a non-compete can find himself or herself being served with a lawsuit and eventually being subject to a court-ordered injunction under the right circumstances.
Non-compete agreements (sometimes referred to as covenants not to compete) are designed to limit a person’s post-employment business activities that might compete with the former employer. While these documents are viewed as restraints on free enterprise, they are nonetheless enforceable provided that they are reasonable in their terms and conditions. In each case, the employer will bear the legal burden of proof to show that the restraint is reasonable in the sense that it is no greater than necessary to protect the employer’s legitimate business interests, is not unduly harsh or oppressive in limiting the employee’s ability to earn a living and does not violate public policy.
In evaluating a non-compete agreement, judges typically look to four components of any restraint: (1) the business interests that the employer is trying to protect; (2) the scope of work that is being limited; (3) the duration of the restraint; and (4) the geographic reach of the restraint.
Courts strictly construe non-compete agreements; therefore, if any ambiguity exists in the document, it will be construed against the employer and in favor of the employee. For this reason, a well crafted agreement is key. This is not the time for DIY lawyering by attempting to write a non-compete for your key employees, unless you are an attorney. Each of the four components mentioned above should be addressed in a non-compete and are discussed briefly as follows:
The employer’s legitimate business interests: An ironclad non-compete will clearly state its purposes. For instance, courts have found that employers have a legitimate business interest in retaining confidential information or retaining its personnel. These reasons should be stated within the document. A non-compete which places emphasis on protecting the employer’s proprietary information, such as its customer lists, pricing, etc., is much more likely to be enforced than a short document that merely bars accepting employment elsewhere after departure.
Scope of work: This provision should be narrowly drawn so that it only prohibits work that actually competes with the current employer. A provision that prohibits any employment in any form would, in all likelihood, be struck down by the court. The provision should be specific as to what the departing employee cannot do. In fact, specific language that details the type of work that the employee can accept after leaving will often go a long way in convincing a judge to enforce the restraint.
Duration: As a general rule, one or two years will be upheld as reasonable. Courts have upheld non-competes lasting as long as three years. Beyond that, an employer runs the risk of over-reaching and invalidating the agreement.
Geographic area: This needs to be tied to the area of trade for the employer. A nationally known company could enforce a nationwide restraint, provided that all other terms are reasonable and the employer has successfully proven the need for the restraint. For most locally or regionally based employers, the provision should cover its geographic territory or provide for a mileage radius. Often, provisions prohibiting competition within a certain mileage from an office or a location of the former employer will be successfully enforced.
A narrowly drawn, clearly written agreement will have a high rate of success being enforced by a Virginia court. Companies that are tempted to raid a competitor’s key talent should take heed, and employers should take heart: Non-competes have teeth and are still very much alive and well in Virginia.