Your non-compete should not be like an amoeba.
Specialty Marketing, Inc. v. Lawrence, Case No. CL09-928, Hanover County Circuit Court (March 11, 2010). Under Virginia law, reasonably drafted non-competition covenants in employment contracts are enforceable, but courts consider them to be disfavored restraints on trade. As a result, in every case involving a non-competition agreement, the employer bears the burden of proving that the covenant is reasonable. Ambiguities in the contract will be construed in favor of the employee. If the non-compete provision is ambiguous, or susceptible to two or more differing interpretations, at least one of which is functionally overbroad, the clause is unenforceable.
In order to demonstrate that a non-competition covenant is reasonable, the employer must prove:
- that the restraint is no greater than necessary to protect the employer’s legitimate business interest,
- that the restraint is not unduly harsh or oppressive in curtailing an employee’s ability to earn a livelihood, and
- that the restraint is reasonable in light of sound public policy.
In measuring the reasonableness of a non-compete covenant, courts consider the effect of the restriction in terms of the prohibited function, the geographic scope of the restriction, and its duration. These are not three separate and distinct issues, but are instead taken together in determining a restrictive covenant’s reasonableness under the circumstances of the particular employer/employee relationship presented by a lawsuit.
Several Virginia Supreme Court decisions have invalidated non-compete covenants that prohibited the former employee from performing job duties unrelated to the prior job duties. This has led to a trend, in trial court decisions, that covenants that prohibit work for a competitor “in any capacity” are overbroad and unenforceable. Similarly, the geographic scope of a non-compete clause must be reasonably limited. Court have often held that non-compete agreements are enforceable when limited to the area formally serviced by the former employee or within a set mile radius of the area formerly serviced by the former employee.
The non-compete provision in this case contained the following language:
[Lawrence] shall not… be employed by … any business competitive with SPECIALTY in areas where SPECIALTY has a market for its business.
The court here found fault with the restriction that Lawrence could not “be employed by … any business competitive with SPECIALTY.” This language, the court held, is overly broad and unenforceable because it is unlimited in functional scope and because it therefore exceeds whatever limitation would be necessary to protect Specialty’s business interests. What is more, the court held that the language prohibiting the Lawrence from being employed “in areas where SPECIALTY has a market for its business” was also overbroad in the geographic sense.
The court hypothesized that, under this geographic restriction, Lawrence could move to a state where Specialty did not have a market for its business, but if Specialty were to later expand its business to that state, then Lawrence would find himself in violation of the non-compete covenant. As the court dramatically put it: “[the non-compete clause] is akin to an amoeba. By having a life wholly unto itself this covenant may grow more oppressive without restriction day by day, week by week, month by month, or year by year.”
Although amoebae are generally counted among the least-oppressive protozoans, the court’s point should not be lost. Non-compete agreements should not be written “flexibly” to include places where the employer might do business in the future. As the agreement in this case shows, such flexibility makes it likely that the agreement will be considered unenforceable. In this case, the court ruled that the agreement was unenforceable and dismissed that part of the employer’s suit against the employee based on the contract.