By: Sismi Menachery
Non-compete or restrictive covenants are common in most employment agreements. The legality of these clauses, however, tends to be a commonly litigated issue in employment agreements. The Obama administration recently called for an action to ban non-compete agreements, to “stoke competition” and “give a fair shot to workers,” with the hope that it would lead to faster wage growth. (Forbes, October 27, 2016).
So, what are these non-compete clauses? Can they be enforced?
A non-compete covenant or agreement, typically restricts an employee at the onset of employment from entering or starting a similar profession or trade, or providing services to the employer’s competitor for a specific duration immediately preceding termination of employment. Typically, courts are reluctant to enforce such restrictive covenants, mainly because it interferes with a person’s ability to make a living.
While each jurisdiction has its own laws and regulations on enforce-ability of restrictive covenants, In Virginia, restraints on trade are not favored; non-compete agreements or clauses are enforceable only if “narrowly drawn to protect the employer’s legitimate business interest, not unduly burdensome on the employee’s ability to earn a living and should not be against public policy.” (emphasis added Omniplex, 270 Va. at 249, 618 S.E.2d 342 (2005).. The employer bears the burden to prove that the restraints are reasonable and enforceable. Motion Control Syss., Inc v. East 546 S.E. 2d 424 (2001)]
Virginia courts construe ambiguous clauses in non-compete agreements against the employer. Landmark Tech., Inc V. Canales 454 F. Supp 2d 524 E.D. Va. (2006). In evaluating the enforce-ability of restrictive covenants, court considers (1) the scope and extent of the restricted activity, (2) geographic scope, and (3) duration of the restriction. Home Paramount Pest Control Cos. v. Shaffer, 282 Va. 412, 415 718 S.E.2d 762, 764 (2011). Non-competes are more likely to be upheld if the geographic scope is smaller, the duration is shorter and the type of restricted activity is narrower. They are also more likely to be upheld if the employee is only prohibited from competing against the employer’s established customers. The lack of geographic limitation alone does not render a non-compete covenant invalid, if other factors such as duration and/or scope of restricted activity are reasonable. Market*Access Int’l, Inc. v. KMD Media, LLC, 2006 WL 3775935, at *3 (Va. Cir. Ct. Dec. 14, 2006.
Therefore, it is advisable to consult a legal counsel to draft an enforceable non-compete clause, to ensure that such restrictive clauses are tailored to meet the reasonableness requirement of the state where the employee works, and accordingly ensure validity and enforce-ability of the agreement.