Businesses often want or need to prevent departing employees from competing with their company, or from stealing the companyโs clients. Agreements between employers and employees that protect against this kind of competition are called โNon-Competitionโ and โNon-Solicitationโ 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 employerโs legitimate business interests, or risk being invalidated by a court. The answer to what constitutes a legitimate business interest may be surprising. For instance, inย 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 โcopy personโ test as an initial threshold for determining whether a covenant is enforceable. The โcopy personโ test, sometimes known as the โjanitor test,โ examines what restrictions are placed on the employeeโs job function by the language of the covenant. Under the โcopy personโ 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 โcopy person testโ 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, contactย Peyton Mahaffey at (703) 934-1168 or Lawrence McClafferty at (703) 934-1135.
