The best way to predict whether a particular noncompete clause will be deemed enforceable in a Virginia court is to read about how similar clauses have been treated by those same courts. No two cases are exactly alike, but non-compete agreements tend to incorporate similar language (mostly for the reason that lawyers don’t like to re-invent the wheel and do a lot of cutting and pasting from prior agreements when drafting such contracts for their clients). Back in November 2017, I wrote about O’Sullivan Films v. Neaves, in which the court held that it would be premature to rule on the enforceability of a noncompete clause without hearing evidence. Since then, the parties presented evidence to the court and the court reached a decision, so I thought it would be a good time to revisit the case here on the blog.
In its latest opinion, the court (the Western District of Virginia, Harrisonburg Division) doesn’t make any new law, but its ruling can serve as a guide to how courts are likely to interpret and apply in the future noncompetes using language similar to the language at issue in the O’Sullivan Films case. Here’s what the noncompete in that case said:
For one year after my employment with O’Sullivan ends, either voluntarily or for cause, I agree that I will not (a) sell, attempt to sell, or assist others in selling or providing products or services in competition with the Business of O’Sullivan at the Restricted Contacts; or (b) help, financially or otherwise, any person or entity to compete with the Business of O’Sullivan by using or contacting the Restricted Contacts.
The agreement defined “Restricted Contacts” as
actual and potential customers, agents, distributors, vendors, business partners, and persons or entities that, during the two years before my employment with O’Sullivan ends, I had direct contact with or that I had indirect contact with, including indirect contact by supporting or being responsible for the activities of other O’Sullivan employees who had direct contact with the Restricted Accounts.
The agreement defined the “Business of O’Sullivan” as
the development, manufacturing, marketing, and sale of plastic engineered films compounds, services related to this market, and other business that O’Sullivan engages in during my employment.
After reviewing the contract language and considering the evidence proffered by the parties, the court held that the noncompete “comports with Virginia law and is fully enforceable.”
Virginia noncompete law if fairly well established. Restrictive covenants are generally disfavored as restraints on trade, but will be enforced if they are narrowly drawn to protect the employer’s legitimate business interests, not unduly burdensome on the employee’s ability to earn a living, and not against public policy. To determine whether a particular noncompete is broader than necessary to protect a legitimate business interest, courts look primarily to three aspects of the restriction: the duration, the geographic scope, and the specific functions and activities that are being restricted.
The so-called “janitor test” deals with the functional limitations: if a noncompete clause is so broad that it would prohibit a former employee from taking a job emptying trash or mopping floors for a competitor, it will be deemed unenforceable as a matter of law (assuming the former employee was not actually working as a janitor in his or her previous position). An IT company, for example, would not have any legitimate business interest in preventing its computer programmers from taking a job as a janitor at another company, even if that company is a competitor. So if that IT company has all its employees sign a noncompete agreement that would restrict them from doing that, most courts will allow the employee to disregard it as unenforceable.
In the O’Sullivan Films case, the employee argued that his noncompete agreement failed the janitor test in light of its prohibition against offering “help, financially or otherwise” to a competitor. He argued that the clause “could cover any manner of ‘help’–sweeping the floors, working in the accounting department, maintaining the plant facilities, providing legal services, stocking the employee kitchen, in addition to being a chemist.”
The problem with this argument, the court held, was that it ignored the qualifying language that accompanied the restriction against “help.” The noncompete only prohibited helping another person or entity compete with O’Sullivan “by using or contacting the Restricted Contacts.” A janitor wouldn’t be contacting the Restricted Contacts and trying to compete, so the janitor test was not violated. All the agreement did was preclude the employee from engaging in employment where he (1) works in a field that is directly competitive with O’Sullivan, and (2) furthers that employment by exploiting his relationship with O’Sullivan’s clients. The court found that to be a reasonable restriction and upheld the noncompete clause as fully enforceable.
To enforce the noncompete, the court instructed the parties to submit a proposed permanent injunction that would prevent the employee from violating its terms for a period of one year. No money damages were awarded (other than attorneys’ fees), as O’Sullivan admitted it had not actually lost any business as a result of the employee’s going to work for a competitor.