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Courts in Virginia Frequently Invalidate Excessively Restrictive Non-Compete Clauses

Businesses often want or need to prevent departing employees from competing with their company, or from stealing the company’s clients. Agreements between employers and employees that protect against this kind of competition are called “Non-Competition” and “Non-Solicitation” agreements or covenants. These clauses place constraints on where a former employee can work after termination or separation, or who and how the former employee can contact clients of the former employer.

However, these clauses must be narrowly tailored to meet the employer’s legitimate business interests, or risk being invalidated by a court. The answer to what constitutes a legitimate business interest may be surprising. For instance, in Parikh v. Family Care Center, Inc., 273 Va. 284 (2007), a medical practice was found not to have a legitimate business interest in preventing a physician from working for another medical practice, even though he was competing within seven miles of the first practice. The first medical practice was not owned by a licensed physician, so the Virginia Supreme Court concluded that it could not legally engage in the practice of medicine. Consequently, the practice could not enforce the non-compete agreement against the physician-former employee.

The enforceability of a non-compete clause also depends on how broad the prohibitions are on job functions in the clause. A number of the judges of the Fairfax County Circuit Court often use what is informally called the “copy person” test as an initial threshold for determining whether a covenant is enforceable. The “copy person” test, sometimes known as the “janitor test,” examines what restrictions are placed on the employee’s job function by the language of the covenant. Under the “copy person” test, if the language of the covenant would restrict the departed employee from taking a job even as a person running the copy machine, then the covenant is unenforceable. Of course, there may be exceptions, such as, if the literal job function of the employee at the original employer heavily involved copying services, then the covenant might be enforceable. If the clause passes the copy person test, then other factors, such as the legitimate business purpose of the restrictions, are considered.

Many businesses are using Non-Competition or Non-Solicitation clauses in standard employment agreements that were drafted some time ago. If so, the agreements may not comply with the “copy person test” and other recent requirements. Periodic reviews of the covenants are recommended.

Disclaimer: This firm only offers legal advice to clients, and the facts of a particular situation usually drive the legal advice we give to clients. This message is not intended to be legal advice appropriate for all situations.

If you would like to know more, contact Peyton Mahaffey at (703) 934-1168, Lawrence McClafferty at (703) 934-1135, or Ralph Tener at (703) 934-1170.