INTRODUCTION
Restrictions on trade, such as non-compete and nonsolicitation agreements, are disfavored under Virginia law. Simmons v. Miller, 261 Va 561, 580, 544 S.E.2d 666, 678 (2001).
Whether the covenant not to compete is enforceable is a question of law. Simmons, 581.
Despite this very direct statement from the Supreme Court of Virginia, hundreds of state circuit courts and federal district courts have found employment agreements containing non-compete language to be enforceable in Virginia. This means the issue will be decided by the court on a case-by-case basis.
1. Is the agreement itself a valid contract?
2. If the contract is valid, is it reasonable?
If the answers to (1) and (2) are yes, then the court will examine more evidence to determine:
3. If the contract has been breached; and if so,
4. Whether such a breach has or will cause the employer damages.
Because restrictive covenants are disfavored restraints on trade, the employer Virginia law also holds that non-compete clauses must be strictly construed against the employer. If the language of the contract is ambiguous, the language will be read by the court against the employer, rather than the employee.
Okay, enough legal speak. What does all this mean practically? The following statements are true, according to relevant Virginia case law on non-competes:
• Every agreement will be reviewed individually.
• Although non-compete agreements are disfavored, if reasonable, courts will enforce the agreements.
• There is no magic litmus test to determine whether your agreement will be deemed valid or reasonable.
• The court will review the facts of your case in light of the agreement you signed and determine whether the contract is enforceable.
• In enforcing a non-compete agreement covenant, the court strives to strike a balance between protecting an employee’s right to secure gainful employment with his former employer’s legitimate business interest.
• The employer has the burden to prove the four factors outlined below:
1. Is the agreement a valid contract?
2. Is the contract reasonable and therefore enforcable?
3. Ifthe contract is both valid and reasonable, did the employee breach it?
4. If the employee did breach the contract, was the employer damaged? Simply stated, Virginia courts consider non-competes on a case by case basis. If you are contemplating sigining a non-compete for the first time, read Chapter 1 first, and then ther est of the book.
If you signed an agreement months or years ago and are now curious as to whether it can be enforced, skip to Chapter II and III. If you have already received word your employer is seeking legal action against you for breaching your non-compete, read Chapter III - QUICK!
CHAPTER I
What Do You Do When Asked to Sign a Non- Compete Agreement?
If your current or future employer asks you to sign a noncompete, how should you respond?
1. Read the Employment Contract
Chances are you did NOT read your cell phone contract in great detail. I would be shocked if you recall reading your credit card contract before signing on the dotted line. Please do not approach your employment contract with the same carelessness. If presented with a contract to sign, ask for time to read it. Ask if you can take it home to read it in your free time. Read every word and paragraph until you understand the terms of the agreement. If you don’t understand, ask questions.
2. Ask Questions
We get calls frequently from employees wanting us to review their non-compete contracts. Typically they call us when they are leaving their job and want to know how their old agreement affects their new job choices and options.When I ask them what they understand the agreement to mean, most often I am told “I don’t know what that means,” or “I am not sure why that clause is in there, I never asked.”
Here is a good list of questions you should know the answers to:
- Choice of law provision: If you live and work in Virginia, and another state’s law applies to the contract, find out why.
- Geographic scope: Find out why the contract forbids you from working anywhere in three states. Does your employer do business there or is that a catch-all provision?
- Is everyone asked to sign a non-compete? If you are being asked to sign one, and no one else is, you need to know that.
- If you are forbidden from contacting clients, what does “clients” really mean and who are they?
- Arbitration: Many attorneys are inserting arbitration provisions in employment contracts. Find out why. Chances are your employer doesn’t know what this means, and may not want the added cost of arbitration.
The moral of the story is that you have every right to ask questions. If you know the terms of the agreement, and what they mean, you can make an educated and informed decision as to whether you are willing to sign the agreement.
3. Have an Attorney Review the Contract
Your employment agreement is a contract. Even if you are
satisfied that you understand the agreement, pay an attorney to review the contract and explain the legal issues contained in the agreement. Chances are good the employer had an attorney draft the agreement, so why not start off on equal footing by having your own counsel explain the agreement?
You have a right to have any and all contracts reviewed by legal counsel prior to signing. Exercising this right may save you time and money in the long run.
4. Negotiate?
There are companies that are happy to discuss and negotiate terms of their employee’s contracts. There are also employers that refuse to negotiate and often will tell prospective employees they can “take or leave” the job. Want to find out what kind of company you work for? Ask around – ask other employees. You may find that your employer is very willing to change or alter terms contained in the agreement. After all, I doubt he personally drafted it.
I advise you to negotiate with some hesitation. In Virginia, employers don’t have any legal obligation to negotiate terms, and can deny you the job should you refuse to sign the agreement. Fair or not, negotiating may cause bad blood between you and your new employer. We have had clients negotiate terms successfully, and others who find the mere mention of the word causes problems.
Bottom line, if you are being presented with a non-compete agreement, or any employment agreement, severance package, etc., DO NOT SIGN IT WITHOUT PROPER CONSIDERATION OF WHAT IT MEANS. At the very least, read it and ask questions. As mentioned above, the agreement was written for your employer by an attorney. It could not hurt to spend a few hundred dollars and have your own attorney read and explain the agreement prior to signing.
Want to receive the entire Book, HOW TO BEAT YOUR VIRGINIA NON-COMPETE? Contact the Frith Law Firm and we will send you a free copy.