Non-Compete Held Enforceable, Lost Profits Sufficiently Proven

The Supreme Court of Virginia recently heard appeals in Preferred Systems Solutions, Inc. v. GP Consulting, LLC, a Fairfax non-compete case previously covered by this blog. The case involved a dispute between a government contractor, Preferred Systems Solutions, Inc. (PSS) and its subcontractor, GP Consulting, LLC (GP). GP terminated its contract with PSS and entered into a contract with a PSS competitor. PSS sued GP alleging breach of contract, misappropriation of trade secrets and tortious interference with contract. The trial court awarded PSS compensatory damages based on its finding that GP breached the non-compete clause in the parties’ contract and that PSS was entitled to recover its lost profits, which it had proven with reasonable certainty. The Virginia Supreme Court affirmed.

Contracts that limit competition are not favored in Virginia and are enforceable only if narrowly drawn to protect an employer’s legitimate business interest, not unduly burdensome on an employee’s ability to earn a living and not against public policy. The court considers the function, geographic scope, and duration of the restriction in evaluating these factors.

Here, the court found that the function of the non-compete clause was narrowly drawn as it was limited to work in support of a particular program run under the auspices of a particular government agency and limited to the same or similar type of Money Stream.jpginformation technology support offered by PSS. Likewise, the twelve month duration of the non-compete was narrowly drawn in the court’s view. The court found that the lack of a specific geographic limitation was not fatal to the non-compete clause because it was so narrowly drawn to this particular project and the handful of companies in direct competition with PSS. Accordingly, the court found that the clause was enforceable.

The court also affirmed the award of $172,395.96. To prove lost profits, PSS had to show: (1) that Accenture billed the work in question; (2) that PSS would have continued to bill for the work had the work not moved to Accenture; and (3) the amount that PSS would have made from billing the work. While there was no guarantee of future contracts with DLA (which proved fatal to the tortious interference claim), the court found that this fact did not amount to a failure to prove the second element, as the standard of proof does not require a guarantee. The circuit court could still have found by a preponderance of the evidence that PSS would have continued to bill for the work had GP not moved to Accenture, so the award of damages was proper.

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