Non-Compete Agreement Held Unenforceable Against Doctor

In Virginia, non-compete agreements are legal but they are not favored and not always enforceable. As restraints on free trade, they will only be enforced if the employer can prove the terms are (1) no broader than necessary to protect the employer’s legitimate business interests, (2) not unduly harsh or oppressive in curtailing the employee’s ability to make a living, and (3) not against public policy. Ultimately, the test is one of reasonableness, considering the circumstances of the business, the nature of the work, and any and all other facts that may be relevant. On December 14, 2015, allergist and immunologist Thomas Fame of Roanoke received some good news: he had been successful in challenging his two-year non-compete agreement, having persuaded the court that it unfairly restricted his right to earn a livelihood by practicing his specialty in his chosen home.

In determining whether a non-compete clause is reasonable, courts examine three factors: (1) the duration of the restriction, (2) the geographic scope of the restriction, and (3) the “function” of the restriction; namely, the precise activities the employee is restricted from engaging in. To be enforceable, the noncompete must be found reasonable as a whole, considering all three elements. If one of the factors is grossly unreasonable, it can invalidate the entire agreement, even if the other two factors are narrowly drawn. (See Home Paramount Pest Control Companies, Inc. v. Shaffer, 282 Va. 412, 419 (2011) (holding that “the clear overbreadth of the function here cannot be saved by narrow tailoring of geographic scope and duration”).

Dr. Fame has practiced in the Roanoke Valley for 23 years. He joined the Asthma and Allergy Center (“AAC”) in Salem as a staff physician in 2010 and signed a “Nonmember Employment Agreement” shortly after joining, which contained a non-compete clause. With respect to the three factors relevant to reasonableness, the noncompete had the following characteristics:

Duration: Two years.

Geographic Scope: “Roanoke City, Roanoke County, Botetourt County, Bedford County, Montgomery County, the City of Salem, Franklin County, Floyd County, Henry County, Rockbridge County, Campbell County, Amherst County, Appomattox County, Alleghany County, and the cities of Martinsville, Buena Vista, Lynchburg, Lexington, and Christiansburg, and the Town of Blacksburg.”

Function: If employed by a competitor to treat allergy and immunological disorders as he did for AAC, Dr. Fame would be prohibited from managing, operating, controlling, participating in, being employed by, or being “connected in any way with the ownership, management, operation, or control” of the competing professional practice.

First of all, the noncompete was not well written. Take a look at the clause itself, quoted on page 5 of the opinion. Read it again. If you find yourself thinking that it doesn’t make any sense, you are not alone. The court found the language was ambiguous (i.e., capable of at least two different interpretations) and held that because at least one reasonable interpretation would be overly broad, the entire noncompete was unenforceable.

The ambiguity lay in the wording of the geographic restriction: was Dr. Fame prohibited from treating any patients hailing from any of the listed areas regardless of where his new practice was located at the time of treatment, or was he merely prohibited from treating patients while he was physically located in any of the listed doctorareas, regardless of where the patients lived? The employer itself was apparently unable to tell. The court found the restriction was unenforceable because it would be an enormous and unreasonable hassle to require Dr. Fame to screen all his patients for connections to the Roanoke Valley.

The court found the agreement unenforceable for a second reason: the function element was too broad. At AAC, Dr. Fame was a staff physician, not an owner. He was not involved in managing, operating, or controlling AAC, yet the noncompete clause restricted him from engaging in such activities on behalf of a future employer. AAC could not prove it had any legitimate business interest in such a restriction, so the noncompete was found overbroad and unenforceable for this reason as well.

All things considered, the court held that the non-compete agreement was unduly harsh and oppressive in curtailing Dr. Fame’s ability to earn a livelihood close to home. The court felt it would be unfair to require Dr. Fame to choose between finding a new career locally or moving out of the Roanoke area where he had lived and practiced for so many years.

So what does this mean for Dr. Fame? He is completely free to disregard the non-compete restrictions in his employment agreement. He can work for whomever he wants, wherever he wants, doing whatever he wants.

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