Virginia Won’t Allow You to Blue-Pencil that Non-Compete

In Virginia, covenants not to compete (a.k.a. non-competition agreements or simply “noncompetes”) are considered restraints on trade and are therefore disfavored in the law. Unlike California, which prohibits them outright, Virginia will enforce such agreements if (and only if) they (1) satisfy the general principles of contract formation and enforceability, and (2) are no broader than necessary to protect the employer’s legitimate business interests. In examining breadth and overall reasonableness, Virginia courts will look primarily to provisions regarding the duration of the restriction, the geographic scope, and the activities that the agreement purports to restrict. What happens, you might ask, if a noncompete is found to be just a tad broader than it needs to be to protect the employer’s interests? Will it still be enforced to the “fullest extent of the law,” disregarding whatever phrase rendered the agreement overly broad? While that might seem the most fair outcome to many employers, if the agreement is governed by Virginia law, the noncompete will be stricken in its entirety and the employee will be free to compete as if the agreement never existed.

In some states, courts will modify any noncompete deemed unreasonable and enforce it to a degree deemed reasonable. For example, if a noncompete prohibits competitive activity for a 5-year period when the business really can’t justify imposing such a restriction beyond one year, the noncompete will be enforced but only for one year rather than the five stated in the agreement. This practice has become known as blue-penciling. Other states allow blue-penciling only if the restrictive covenant as a whole does not reveal any deliberate intent by the employer to place unreasonable and oppressive restraints on the employee. Virginia, however, does not allow blue-penciling at all. As a general rule, unreasonable covenants not to compete will be declared void and unenforceable, and courts will not modify them by re-writing contracts previously agreed to by the parties.

The question inevitably arises: what if the parties enter into a noncompete agreement that specifically allows for blue-penciling? Critics of Virginia’s strict rule against court-modification of non-compete agreements point out that the rule results in uncertainty, as neither the employer nor the employee will know for sure whether a particular noncompete agreement will be deemed enforceable until after litigation and a court order. So what if they agree in advance that if a court were to find the noncompete overly broad for some reason, the agreement should still be enforceable but only to the extent found reasonable? Doesn’t matter, say most Virginia courts (though the Virginia Supreme Court has not yet addressed this issue).

In a recent case out of Fairfax County, the court was called upon to interpret and apply a provision stating as follows:

The invalidity of any portion of this Agreement shall not be deemed to affect the validity of any other provisions. In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed in full force and effect as if they had been executed by both parties subsequent to the expungement of the invalid provision. Further, if any part on any provision of this Agreement shall be determined to be invalid or unenforceable by reason of the extent, duration or geographical scope thereof, or otherwise, then the parties agree that the court making such determination may reduce such extent, duration or geographical scope, or other provisions thereof, and in its reduced form such part or provision shall then be enforceable in the manner contemplated hereby.

The noncompete at issue, in an attempt to be as narrow as reasonably possible, stated that it “applie[d] only to those services rendered by bluepencil.jpgEmployee or an office or unit of the Company in which Employee worked or over which Employee had supervisory authority.” The court found that the agreement might have been enforceable had the language stopped at “services rendered by Employee,” but the inclusion of the language after that clause was broader than necessary. So the question became whether to honor the parties’ express agreement to permit blue-penciling (which would have authorized the court to simply disregard the excessive language that rendered the noncompete overly broad). The court declined to do so and dismissed the case the former employer had brought to enforce the provision. The court reasoned that the concerns underlying the policies against bluepenciling were not alleviated by the parties’ agreement to allow it. (See Lasership, Inc. v. Watson, 79 Va. Cir. 205 (2009)).

So if you’re an employer trying to enforce a potentially overbroad noncompete in a Virginia court, are you completely out of luck? Not entirely. You may be able to escape the often harsh result of Virginia’s anti-bluepenciling rule by including a choice-of-law provision designating another state’s law as the authority governing the enforceability of the contract. Unlike its stance on non-competition agreements, Virginia generally looks favorably upon choice-of-law clauses, giving them full effect provided the other state’s law does not offend Virginia public policy. Expect the employee to argue that to apply the law of a state that allows blue-penciling would be repugnant to Virginia’s policy against the practice, but the reality is that most courts have found that this concern is outweighed by Virginia’s policy favoring the enforcement of choice-of-law provisions. (See, e.g., Edwards Moving & Rigging, Inc. v. W.O. Grubb Steel Erection, Inc., 2012 WL 1415632 (E.D. Va. Apr. 23, 2012); Jones v. Dent Wizard Int’l Corp., 2002 WL 32254731 (Va. Cir. Ct. May 6, 2002)).

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