U.S. - Virginia

2019.06.12  Overview of VA Non-compete Law

New "Function" Standard (2011.Nov.21).  

  • Virginia's Supreme Court Refines Non-Compete Standard -- Reviewing a non-competition "provision that prohibits former employees from working for competitors in any capacity," Virginia's Home Paramount decision reverses prior precedent by concluding that "Although we weigh the function element of a provision that restricts competition together with its geographic scope and duration elements, the clear overbreadth of the function here cannot be saved by narrow tailoring of geographic scope and duration."  See Home Paramount Summary (11/2011) by Jared Lamb of Georgetown Law.

2013.Sept.12  Enforcement of Non-Compete Held Inherently Factual - Not Suited to Demurrer (aka Motion to Dismiss). See Assurance Data v. Malyevac, VA Supreme Court. 
General Rule.  See the following text from Omniplex World Services Corp. v. U.S. Investigations Services, 270 Va. 246, 249, 618 S.E.2d 340, 342 (2005):

  • A non-competition agreement between an employer and an employee will be enforced if the contract is narrowly drawn to protect the employer's legitimate business interest. is not unduly burdensome onthe employee's ability to earn aliving, and is not against public policy. Modern Enviroments Inc. v. Stinnett, 263 Va. 491, 493, 561 S.E.2d 694, 695 (2002); Simmons v. Miller, 261 Va. 561, 580-81, 544 SE.2d 666, 678 (2001).  Because such restrictive covenants are disfavored restraints on trade, the employer bears the burden of proof and any ambiguities in the contractwill be construed in favor of the employee.  ld at 581,544 S.E.2d at 678. 

Each non-competition agreement must be evaluated on its own merits, balancing the provisions of the contract with the circumstances of the businesses and employees involved. See Modern Env'ts, 263 Va. at 494-95, 561 S.E.2d at 696.

Business Transaction - NonCompete

2012.Feb.14 Upheld in Land Sale though Overbroad. In BP Products v Stanley, the 4th Cir. ruled in favor of "BP's action seeking to enforce a restrictive covenant in a deed." Quoting further from the decision:

  • BP argues that the district court erred in concluding that the PR was overbroad and, thus, unenforceable. We agree.
  • Defendants argue that the restriction should be judged by the standard discussed in Omniplex World Services Corp. v. U.S. Investigations Services, Inc., 618 S.E.2d 340, 342 (Va.2005), which applies to non-compete covenants in employment contracts. BP contends that restrictive covenants in deeds are judged by a different standard, namely the one discussed in Merriman v. Cover, Drayton & Leonard, 51 S.E. 817, 819 (Va.1905), and that the Omniplex and Merriman tests are distinct from one another. We agree with BP. 
  • We therefore conclude that the PR, although perhaps slightly broader than necessary to achieve its purpose, on the whole “afford[s] a fair protection” to BP's interests without being “so large as to interfere with the interests of the public.” Merriman, 51 S.E. at 819.

2011.May.4  "Greater Latitude" in Sale of Business -- "Where a contract for the sale of a business between a vendor and buyer contains a covenant not to compete, however, greater latitude is allowed in determining the covenant’s reasonableness than when the covenant relates to an employment contract. Alston Studios, Inc. v. Lloyd V. Gress & Assocs., 492 F.2d 279, 284 (4th Cir. 1974) ..."McClain & Co., Inc. v. Carucci, 2011 U.S. Dist. LEXIS 48404 (W.D. Va.).
Non-Solicitation Agreements - General Rule: "These same standards apply when reviewing non-solicitation agreements. Foti v. Cook. 220 Va. 800, 805, 263 S,B.2d430,433 (1980)." Daston Corp. v MiCore Solutions (VA 19th Cir., Fairfax), further stating that:

  • The Supreme Court of Virginia has held that an employer has a"legitimate business interest in precluding a former employee who had frequent direct customer contactor substantial knowledge of the employer's confidential information or methods of operation from contacting the employer's customers. See Paramount Termite Control Co., Inc. v. Rector, 238 Va. 171, 175, 380 S.E.2d 922, 925 (1989). TheSupreme Court of Virginia has consistently upheld restrictions on trade that protect the employer from direct competition by former employees. E.g. Omniplex World Servs. Corp. v. US Investigations Servs., 270 Va. at 249·50, 618 S.E.2d at 342.

Non-compete Invalid (too broad in scope) while Non-solicit Enforced.  Daston Corp. v MiCore Solutions (VA 19th Cir., Fairfax), stating as follows.

  • In this case, the Nonsolicitation clause is no broader than necessary to meet Daston's legitimate business interest. The plain language of the clause applies only to a fixed universe of customers,namely those that existed during the employee's term of employment. . . . The fact that the Nonsolicitation clause applies nationwide does not render it unenforceable. SeeManTech Int'1Corp.v.Analex Corp, 75 Va. Cir. 354, 357 (2008) (the lack of a aeographic limitation is not in itself fatal to a noncompetition clause). Daston holds a nationwide license authorizing it to resell Google Apps services, and thus may protect its legitimate business interest by limiting solicitation of its customers nationwide.
  • .  . In this case, the Covenant Not To Compete bars Mr. Spruilland Mr. Stout from providing to any Daston client services that are "substantially similar or related to services that were provided to that client by Mr. Spruill or Mr. Stout, or any Daston Employee working under their supervision. In this case, the Court finds that the phrase "substantially similar or related" renders the clause unenforceable because it is vague and bars not only direct competition with Daston, but also the provision of services that are merely"related" to the services provided by Daston. As a result, the prohibition on Mr. Spruill and Mr. Stout is broader than necessary to protect Daston's legitimate business interest. The Covenant Not To Complete is not enforceable.

Compare Simmons v. Miller, 261 Va. 561, 544 S.B.2d 666 (noncompete clause applyina to "any business similar to the type of business conducted by Employer" was over broad and unenforceable) and Mantech Int'l Corp. v. Analex, 75 Va. Cir. at 357 (the phrase "predominantly similar types of products and/or services" is unenforceable) with Roanoke Eng'g Sales Co., Inc. v. Rosenbaum, 223 Va. 548, 551, 290 S.E.2d 882, 883 (1982) (noncompete clause that applied to "any business similar to the type of business conducted by [the employer]" was enforceable) and Lasership, Inc. v. Watson, 2009 Va. Cir. LEXIS 664 (2009) (noncompete clause applicable to "substantially similar" products and services is enforeeable).

See also: How IronClad is Your Non-Compete (2011.Mar.7) reviewing a recent Virginia decision that refused injunctive relief against a nurse practitioner who left employment in order to open a competing business (on the ground that the underlying non-compete and non-solicit agreement was overly-broad).

Non-compete Overly Broad "Amoeba" despite Business Transaction: see Specialty Marketing v Lawrence (15th Jud. Cir., 2010), providing that --

  • In this case, the non-compete provision expressly states that Lawrence shall not "be employed by ... any business competitive with SPECIALTY." This language is precisely the type deemed overly broad and unenforceable by the Supreme Court of Virginia because it is unlimited in functional· scope. The language far exceeds whatever limitation would be.necessary to protect Specialty"s business interests. Additionally, the restrictive covenant prohibits Lawrence from being employed "in areas where SPECIALTY has a market for its business." Thus, Lawrence could move to Arizona, a state outside those listed in the Complaint that define the area where Specialty has a market for its business, and if Specialty were to expand its business to the state then Lawrence would be in violation ofthe Agreement. The geographic scope is clearly not limited to the area formerly serviced by Lawrence or within a set mile radius of his former territory. As stated in Lawrence, "[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." Lawrence v. Business Communications of Va., Inc., 53 Va. Cir. 102, 103 (2000).

Non-compete in Claims Release -- results in greater judicial deference, drawing from sale of business rules, per McClain & Co., Inc. v. Carucci, 2011 U.S. Dist. LEXIS 48404 (W.D. Va. May 4, 2011).

Stock Awards and On-line Execution Enforces re Non-compete Covenants - see MeadWestvaco Corp. v. Bates, No. CL13-1589 (Va. 12th Cir. Ct. Aug. 1, 2013) (unpublished)