If you work in the state of Virginia and signed an employment contract when you began your employment, that employment contract likely contained a covenant not to compete, also referred to as non-compete clause.
A covenant not to compete is a clause contained in an employment contract that enables employers to prevent an employee from working for a competing company for a specified period of time after their employment is terminated.
The purpose of a non-compete is to prevent former employees from disclosing the intellectual property of the company, including company practices, clientele, and other confidential information.
The short answer is yes. Even without a signed covenant not to compete, an employee in Virginia can be held liable for a number of torts if they share a company’s confidential information with a competitor.
Causes of action for sharing a company’s confidential information or trade secrets can include: breach of contract, tortious interference with a contract, conversion, business conspiracy, and/or violation of the Uniform Trade Secrets Act.
If you have signed a non-compete clause, that does not mean that you are 100% bound by the terms in the covenant not to compete. Virginia non-compete clauses are only enforceable if an employer can demonstrate the following:
- That the restrictions on the terminated employee are “no greater than is necessary to protect the employer’s legitimate business interest”;
- That the non-compete clause is not excessively oppressive or severe in restricting the former employee’s ability to make a livable income and find new employment; and
- That the covenant not to compete does not violate a clear mandate of Virginia public policy.
The Virginia Supreme Court provides several factors in order to determine whether a non-compete clause is valid and enforceable. When reading the covenant not to compete, you should ask yourself the following:
- Is the restraint on the employee’s ability to make a living harsh and oppressive?
- Are the time or geographic limitations placed on the worker reasonable?
- Is the covenant not to compete so ambiguous that its enforcement is not easily determinable?
If the answer to any of the above questions is “yes,” then a Virginia court will likely determine the non-compete clause to be unenforceable. On the other hand, Virginia courts will likely determine that a non-compete clause is valid if it utilizes clear and precise language to place restrictions on former employees for legitimate business purposes.
Additionally, non-compete clauses restricting disclosure of customer lists, technological plans or projects, and plans for market expansion will usually be upheld as valid non-compete restrictions.
Although an employer cannot recover for an employee’s violation of a covenant not to compete without first establishing proof of actual harm, such as monetary damages, the employer can always sue you to attempt to enforce the non-compete clause. Thus, even if the non-compete clause is overbroad and a court would likely rule that it is invalid, the cost of fighting the lawsuit in court can be very difficult and costly.
As can be seen, the most important thing in determining the validity of a non-compete clause is the reasonableness of the clause.
As noted above, Virginia covenants not to compete must be reasonable in terms of geographic, temporal, and industrial restrictions. For example, in a recent decision, the Virginia Supreme Court struck down a covenant not to compete that prohibited the employee from selling any kind of motor while the employer sold a certain type of brushless motor. In this particular case, the whole covenant not to compete was thrown out, because the covenant not to compete was too broad.
Virginia courts have historically noted and refused to correct or modify overly broad language in order to make non-compete clauses valid. Thus, employers should focus on making their covenants not to compete more narrow than broad. An example of a proper covenant not to compete is preventing the CEO of Coca-Cola Co. from quitting and becoming the CEO of PepsiCo and sharing the Coca-Cola secret formula, business models, or customer lists.
However, limiting the CEO of Coca-Cola from becoming a CEO or holding a position of authority in the entire state of Virginia or anywhere in the United States, would be too broad and oppressive of a restriction, because it takes away the person’s ability from earning a living. However, limiting a CEO that deals specifically in beverages in the Richmond area from not working for a company that deals in beverages in the greater Richmond area, may be upheld as a valid non-compete clause.
Although not required, before signing anything that may restrict your future employment options, it may be in your best interests to consult a well qualified and experienced Virginia attorney that specializes in employment law to review the contract.
If you are an employer, than a Virginia lawyer specializing in employment law can help you draft a valid covenant not to compete, or negotiate the terms of such a non-compete clause.