Severance of Non-Compete Restrictions in Virginia

Last month, I wrote about blue-penciling of non-competition and non-solicitation agreements and about the fact that if you are dealing with an unenforceable noncompete in Virginia, the entire clause will likely be stricken rather than amended. If you are a Virginia employer seeking to ensure your employees are actually bound by their agreements not to complete with your business post-employment, one thing you may be able to do is specify in the agreement that it will be governed by the law of a different state (i.e., one whose laws permit blue-penciling or which are otherwise considered more favorable to employers). This approach, however, will only be viable if your company (or the employee) has some significant connection with the selected state, as it is considered a violation of due process rights to surprise employees with arbitrary choice-of-law provisions. There is an easier way to ensure the noncompete provisions have teeth: make the obligations severable.

Virginia law will permit you to include a “severability clause” when drafting a noncompete agreement, permitting the court to analyze and enforce the various noncompete and non-solicitation provisions separately. The benefit to employers is that if the court finds one of the sections overly broad and therefore unenforceable, the court can “sever” the unenforceable provision and enforce the other sections, provided they don’t suffer from the same enforceability issues. For this to work, the parties need to reach an agreement (preferably expressed explicitly in the contract itself) to the effect that any restrictive covenant found by a court to be unenforceable can be severed from the agreement, leaving the remainder of the provisions intact. Such a clause might look something like this:

Severability. If any clause, provision, covenant or condition of this Agreement, or the application thereof to any person, place or circumstance, shall be held to be invalid, unenforceable, or void, the remainder of this Agreement shall remain in full force and effect.

So, for example, suppose your employee signs an agreement containing separate paragraphs prohibiting him from, post-employment: (1) working in any capacity for a competitor; (2) working for a customer or client doing the same job the employee did for you; (3) soliciting your employees; or (4) revealing your trade secrets or other confidential commercial information. The employee quits working for your business and takes a job directly with a client, doing essentially the same ripped.jpgwork. You sue him for violating section (2), in which he agreed not to do this. Suppose further the court finds Clause #1 unenforceable because it violates the so-called “janitor test” and is therefore broader than it needs to be to protect the employer’s legitimate business interests. If the parties agreed to a severability clause in the employment agreement, the court (even a Virginia court) can sever Clause #1 from the rest of the agreement and continue to enforce sections 2-4, allowing you to pursue your claim. Absent a severability clause or other reason to believe the parties intended to permit severance, the chances are high that the unenforceability of section (1) would poison the entire agreement and result in invalidiating all of the restrictive covenants.

Note that even without a stand-alone severability clause, you can often accomplish the same objective by writing the contract in such a way as to indicate your intent to create independent post-employment obligations. This can be as simple as using separate, numbered paragraphs for each obligation (e.g., non-competition, non-solicitation of customers, non-solicitation of employees, etc.) and connecting them with “or” instead of “and.” Crafting the agreement in such a way signals to the court that the parties likely intended for each obligation to exist independently of the others. In other words, the court may, in appropriate circumstances, sever an unenforceable provision in your noncompete agreement even if it doesn’t contain a severability clause. (For an example of a case in which the court did this, see Roto-Die Co. v. Lesser, 899 F. Supp. 1515 (W.D. Va. 1995)).

Note that severance is similar to blue-penciling, but different. Blue-penciling a noncompete provision involves re-writing invalid language to make it fit within the bounds of the law, generally by disregarding certain terms or by adding new ones. Severance, on the other hand, involves cutting an entire provision from the agreement and enforcing what’s left. Severance does not involve re-writing the parties’ agreement, but is generally designed to effectuate the intent of the parties. Blue-penciling emphasizes the deletion (or addition) of words in a particular clause, whereas severing emphasizes construing independent clauses independently.

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