To Dispute Enforceability of Noncompete, File Plea in Bar

When the Virginia Supreme Court decided Assurance Data v. Malyevac a few years ago, most employment lawyers speculated that although Virginia law no longer permitted most non-compete cases to be disposed of summarily on demurrer, a procedural mechanism known as the “plea in bar” could still be used by defendants intent on challenging the enforceability of their noncompete agreements. Assurance Data held that “restraints on competition are neither enforceable nor unenforceable in a factual vacuum” and that evidence is ordinarily required to perform the analysis. Unlike demurrers, pleas in bar allow for the presentation of evidence, so it would seem that the plea in bar would be an appropriate way to dispute a noncompete. A new decision from the Circuit Court of Fairfax County agrees with this approach.

Omnisec International Investigations v. Slavica Stone was (and perhaps remains) a dispute over the enforceability of a “Non-Solicitation, Non-Competition and Confidentiality Agreement for Management/Key Employees” between Omniplex World Services Corporation and Slavica Stone, the key provisions of which read as follows:

(a) Non-Solicitation of Employees. Employee hereby covenants and agrees that, during Employee’s employment with OMNIPLEX and for a period of one (1) year immediately following the termination of such employment, whether voluntary or involuntary, Employee agrees not to (1) induce, solicit, request, recruit or aid any employee of OMNIPLEX, to leave OMNIPLEX to work for any other employer, including but not limited to, competitors of OMNIPLEX and current or former customers or clients of OMNIPLEX; (2) employ or attempt to employ in any capacity any of OMNIPLEX’s employees; or (3) in any other manner for any reason induce any of OMNIPLEX’s employees to leave his/her employment.

(b) Non-Solicitation of Customers/Clients. Employee hereby covenants and agrees that, during Employee’s employment with OMNIPLEX and for a period of one (1) year immediately following the termination of such employment, whether voluntary or involuntary, Employee will not, directly or indirectly, in competition with OMNIPLEX, whether on Employee’s own behalf or on behalf of any other person or entity, solicit business from or conduct business with any Restricted Entity, as defined below; or attempt or seek to cause any Restricted Entity to refrain from doing business with OMNIPLEX. For purposes of this paragraph, a “Restricted Entity” is any customer or client or potential customer or client of OMNIPLEX that Employee solicited, called upon, conducted business with, became aware of, or identified as a potential customer or client of OMNIPLEX, during Employee’s employment by OMNIPLEX.

(i) Non-Disclosure. Employee agrees that during Employee’s employment with OMNIPLEX and thereafter, Employee will not use, disclose or transfer directly or indirectly any OMNIPLEX Confidential Information or Third Party Information other than as authorized by OMNIPLEX, nor will Employee accept any employment or other professional engagement that likely will result in the use or disclosure, even if inadvertent, of OMNIPLEX Confidential information or Third Party Information. Employee agrees that he will not use in any way other than in furtherance of OMNIPLEX’s business any OMNIPLEX Confidential Information or Third Party Information.

Stone was a background investigator with over 30 years of professional experience. In 2003, she began working for Omniplex, a company that conducts security clearance background investigations for federal agencies. She left in April 2017 to take a similar job with CSRA, Inc. Omniplex sued, claiming that she was background_check-300x225precluded from taking the CSRA job due to various provisions in the Non-Solicitation, Non-Competition and Confidentiality Agreement (hereinafter the “Noncompete”).

When Stone filed a plea in bar, Omniplex argued that a plea in bar was not an appropriate vehicle through which to contest a noncompete agreement. The court disagreed. First of all, the enforceability of the Noncompete was a “single issue, which, if proved, creates a bar to [the] plaintiff’s recovery.” That is exactly what a plea in bar is designed to do: prevent a lawsuit from going forward when the viability of the entire case depends on a single issue that can be proved at the outset. In fact, the court held, a plea in bar is “particularly appropriate” because the issue of whether a restrictive covenant is enforceable is a matter of law to be decided by a judge, not an issue for the jury.

The court noted that Assurance Data did not expressly address the suitability of pleas in bar to challenge noncompete agreements but that it gave its implied endorsement by rejecting the use of demurrers and by citing Home Paramount with approval. (Home Paramount involved a plea in bar).

Even though it was the employee in this case who brought the plea in bar, the court held that it was the employer, Omniplex, who ultimately bore the burden of proving, at the plea in bar hearing, the factors necessary to establish enforceability, namely:

  1. that the noncompete is narrowly drawn to protect the employer’s legitimate business interest;
  2. that the noncompete is not unduly burdensome on the employee’s ability to earn a living; and
  3. that the noncompete does not violate public policy.

It is not up to the employee to prove unreasonableness.

Applying these principles, the court first held that the paragraph governing “Non-Solicitation of Employees” was reasonable (and therefore enforceable). The court was unpersuaded by the defendant’s argument that the clause was unreasonably broad in that it would prohibit her from urging an Omniplex employee to leave the company for “any reason, even their health.” While this may be true, the court noted, “it in no way affects an employee’s right to secure gainful employment.”

Turning to the paragraph governing non-disclosure of employer information, the court found that provision enforceable as well. The clause prohibited the employee from disclosing confidential and/or proprietary information “in perpetuity,” but that did not impair Stone’s ability to earn a living, so the court was not bothered by the lack of a time restriction.

However, the non-disclosure paragraph also contains language purporting to restrict Stone from ever taking any job “that likely will result in the use or disclosure, even if inadvertent, of OMNIPLEX Confidential information.” This particular provision (essentially a noncompete clause) was found to be unreasonably broad. If a noncompete term is so vague that an employee would not likely understand how to comply with it, there’s a good chance it will be struck down. Here, the court observed that there was no way for Stone to determine which potential future employment opportunities may be likely to result in disclosure (intentional or unintentional) of Omniplex’s confidential information. Moreover, the restriction lasted forever, which was unreasonable. For these reasons, the court sustained the plea in bar with respect to this clause.

As previously noted on this blog, Virginia law does not allow “blue penciling” of noncompete agreements, but it’s perfectly acceptable to sever unenforceable clauses if permitted by the terms of the agreement. That’s what the court did here: it severed the unenforceable provision from the agreement, leaving the rest intact, pursuant to the Noncompete’s severability clause.

Finally, the court addressed the paragraph governing non-solicitation of customers and clients. Stone argued the clause was unenforceable because it was not limited to Stone’s specific past activities and that it applied not only to actual customers but also potential customers, a broad restriction. The court felt that Omniplex had properly limited this provision by limiting it to defined “restricted entities” that only really applied to nine different entities. Moreover, because the definition of “restricted entities” was limited to those which Stone “solicited, called upon, conducted business with, became aware of, or identified as a potential customer or client of Omniplex” during her employment, it effectively applied only to her specific past activities, making it a reasonable (and therefore enforceable) restriction.

 

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