CASE REPORT: VIRGINIA COURT FINDS NON-COMPETE UNENFORCEABLE

This report comes to you from the Richmond City Circuit Court in a case styled Leah Pace v. Retirement Plan Administrative Service, Ltd (RPAS) and was decided on September 28, 2007. Pace, a former employee of RPAS filed suit against RPAS asking the court to find the non-compete agreement she signed with RPAS to be invalid and unenforceable.

The court acknowledged a non-compete agreement is enforceable if: (1) it is narrowly drawn to protect the employer’s interest; (2) is not unduly burdensome on the employee’s ability to earn a living; and (3) is not against public policy. The court noted that non-compete agreements are disfavored restraints on trade and the employer has the burden of proving it passes each of the three tests outlined above.

In Pace, the court found that the non-compete agreement was overly broad and therefore unenforceable. Interestingly, the court noted the agreement contained a “blue-pencil” provision which is designed to allow the court the ability to “re-write” the agreement so as to make it comply with Virginia law. The trail judge ruled that Virginia, unlike other states, did not allow for blue-pencil provisions and its inclusion in the agreement made it unenforceable. Finally, the court noted the agreement provided for “liquidated damages” to the employer which is contrary to Virginia’s public policy.

This decision is a win for the good guys!

NON-COMPETE AGREEMENTS AND PHYSICIANS

As we have written before, non-compete clauses are used everywhere in employment contracts…from television personalities, to sales, to gourmet chefs, and even doctors! Not all of these restrictions on the right to earn a living are legal and enforceable.

What does the American Medical Association (AMA) have to say about non-compete clauses in physician employment agreements? The AMA policy says "covenants not to compete restrict competition, disrupt continuity of care and potentially deprive the public of medical services." The AMA says non-compete agreements are unethical if excessive in scope. Bravo! The AMA should take a hard stand against onerous non-compete agreements. Such agreements work a terrible disservice to the public by limiting the availability of doctors and preventing competition which helps keep the cost of healthcare from skyrocketing!

Doctors should think long and hard before signing a non-compete agreement. If possible, the doctor being asked to sign the agreement should limit the restrictive language such that they can earn a living in a desirable geographical area if his/her employment turns out to be a short term situation.

VIRGINIA NOT LIKE OTHER STATES

We get calls from very bright, educated, capable men and women who have done their homework on whether their non-compete or non-solicitation clause will be considered valid by the Court. Often, these folks will say "It's not enforceable. They asked me to sign it 2 years after I started my job!" Well, in California, that might get you somewhere, but in Virginia, the courts agree, it does not make the contract invalid.

A non-compete or non-solicitation agreement is simply, a contract. And for a contract to be valid, there has to be consideration, rather, a bargain or exchange. Each side gets a little, each side gives a little. Virginia law believes that if you get to keep your job, then that is bargain enough for contracting away competition rights and signing a non-compete. In other states, the employer cannot just ask you to sign one without giving you more in the bargain, such as a bonus, or a raise - so it is often you will see an agreement where employee signs the non-compete, but gets cash bonus in exchange.

We will continue to argue that lack of consideration makes the contract invalid, but so far, no Virginia judges agree.... So note, each state is different - check the contract, and do some research on the specific state laws that apply.

LYNCHBURG, VIRGINIA RADIO STATION WINS NON-COMPETE LAWSUIT

The U.S. 4th Circuit Court of Appeals has sided with Centennial Media, the owner of Lynchburg-based talk radio station WLNI, in its effort to block another talk station from broadcasting from Bedford. Centennial paid about $4.4 million when it bought WLNI-FM from Gary Burns in 2005, according to court filings. Then in 2006, citing a five-year non-compete agreement that was part of the sale, Centennial took Burns to federal court to stop him from operating WBLT-AM as a talk station.

In September 2006, after hearing conflicting testimony about how many categories of talk radio there might be, U.S. District Judge Norman Moon ruled that Burns and 3 Daughters could not operate a station with a talk format until the five-year non-compete agreement ended. Burns appealed to the 4th Circuit, saying the language of the non-compete agreement was ambiguous and unenforceable.

The 4th Circuit judges said the agreement's ban on Burns' overseeing a "significantly similar" format at another station was clear enough and upheld Moon's ruling.

This is a terribly unfair decision!

WHY CAN’T I COMPETE?

Non-compete agreements are rampant in the tech industry and most workers have no choice but to sign them, but are they worth getting worked up over? I think they are despite what a recent article in Eweek.com has to say.

Non-compete agreements can wreak havoc on your professional and personal life! You can incur thousands of dollars in legal fees and, if you lose, be prevented from earning a livelihood in your chosen professional for any where from 6 months to 2 years!

Read your agreement. Discuss the effect of the non-compete and non-solicitation provisions with a lawyer knowledgeable of the issues.

NEGOTIATE BEFORE SIGNING A NON-COMPETE AGREEMENT

Most of our clients come to us after signing a non-compete agreement with their employer with the question, “How do I get out of this thing?” Well, the best way to limit or even eliminate the impact of a non-compete agreement is to negotiate with your prospective employer before you sign the non-compete agreement!

Many employers require non-compete agreements simply because everyone else does. When you take a job, it's up to you to protect your rights and freedoms. The best strategy is to negotiate the non-compete agreement without suggesting you are insulted or bothered by it. Since such agreements are often legal boilerplate, a company may be willing to negotiate specific terms. You may be able to get both the compensation deal you want and a comfortable non-compete agreement.

For example, a 100 mile radius for the non-compete may be reasonable but a 500 mile radius is unreasonable. A five year limitation on working with a competitor is totally unacceptable but you may be able to live with a one year restriction. How about listing the names of the companies who are direct competitors and agreeing not to work for those companies for one year! Is it fair for an employee in an “employee at will” state to be required to sign an onerous non-compete when they could be fired, without cause, in 30 days? The answer is “NO” and if your prospective employer sees it otherwise…maybe the job offer is not so good after all!

WHIRLPOOL AND ELECTROLUX FIGHT IT OUT OVER NON-C0MPETE

Last year two rival appliance companies, Whirlpool and Electrolux, battled it out in the courts over a district sales manager who was enticed to jump between the companies. The sales manager had signed a "Leadership Agreement" with Whirlpool in June 2006 that included a one-year covenant not to compete and a one-year customer non-solicitation clause.

A federal judge denied Whirlpool's request for a preliminary injunction because the non-compete provision contained no geographical restriction and Whirlpool could not show that the sales manager had disclosed or was likely to disclose any confidential information to his new employer, the court concluded that injunctive relief was not warranted. Whirlpool not only left court empty-handed, it may have also hurt itself by creating the impression with other employees who signed similar "Leadership Agreements" that their agreements are similarly unenforceable.

As we have said here before…”pigs get fat and hogs get slaughtered”!!

CHESAPEAKE VIRGINIA COURT REFUSES TO ENFORCE NON-C0MPETE

Here is some good news to report! A Chesapeake, Virginia Judge has refused to enforce a non-compete clause in an employment contract. Theodore Wood has been in the pavement-marking business for eight years. Spivey Pavement Markings Inc. sued Wood and his current employer, Mid-Atlantic Pavement Markings LLC, saying that Wood had breached a "noncompete agreement" he had signed while at Spivey. His departure for a nearby company, the suit contended, had caused Spivey "irreparable harm."

Wood attacked the non-compete clause as unfair and overly broad. For instance, the non-compete defined a wide region in which Wood was prohibited from working for two years after leaving Spivey. It wasn't just Chesapeake or Newport News. It consisted of 65 cities or counties in Virginia, including Charlottesville, Bedford County and South Boston, and seven in North Carolina.

The agreement also didn't specify the job duties Wood was prohibited from performing, saying only that he could not "become an employee" of a similar business within the zone. That could restrict him even from being a janitor at his new employer’s business.

The court ruled the non-compete clause "overbroad, ambiguous and vague" and therefore void. Bravo!!