How IronClad Is Your Non-Compete Agreement?

In Virginia, employers who wish to restrict their employees from competing with them in a new job need to write restrictive covenants tightly and narrowly and should define all the key terms in their noncompete and nonsolicitation agreements carefully – or the courts will not enforce the covenants and former employees will be free to disregard the restrictions. That’s one of the messages of a ruling handed down recently by Judge Frederick B. Lowe of the Virginia Beach Circuit Court in a case involving a nurse practitioner who left a medical group to set up her own competing practice.

Ameanthea Blanco was a family nurse practitioner employed by Patient First Richmond Medical Group, LLC, which provided primary and urgent care to patients. She signed an employment agreement in January 2010 that contained non-competition and non-solicitation provisions. In August 2010, she resigned from Patient First, and a little over a month later, she opened her own practice nearby. Patient First sued Blanco for an injunction to enforce the non-competition and non-solicitation provisions, but the circuit judge declined to issue an injunction, finding the relevant portions of the agreement to be unenforceable.

The noncompete agreement barred Blanco, for two years after she left the company, from performing medical services of the type that she performed at Patient First in the previous 12 months, anywhere within a seven-mile radius of any Patient First center at which she “regularly provided medical services.” She was restricted from doing so as an “agent, officer, director, member, partner, shareholder, independent contractor, owner or employee,” and the prohibition applied if she did so “directly or indirectly.”

In his ruling, Judge Lowe summarized Virginia case law on covenants not to compete and concluded that they must be reasonable from the standpoint of the employer, the employee, and sound public policy, and that the employer bears the burden of proof and that any ambiguities are to be construed against the employer. The judge noted that the “critical issue” in examining cases of this type is “whether the functional reach of the covenant is overbroad.” In this case, he found that it was overbroad for several reasons. First, it was not limited to businesses that actually compete against Patient First, because it bars even “indirect” involvement and even involvement as a shareholder. That would mean that Blanco could not even own shares in a public company if the company provided the same services as Patient First at any location within seven miles of where Blanco “regularly provided medical services.” Many such public companies, the judge noted, do not compete with Patient First.

Furthermore, the agreement did not define the “medical services” that are barred, nor did it define the term “indirectly.” Accordingly, the judge ruled that the covenant not to compete “is overbroad and uncertain in its functional reach, and is unenforceable.” He reached the same conclusion, for the same reasons, regarding the covenant prohibiting the solicitation of staff.

It’s clear, therefore, that in Virginia, a non-compete clause must be fairly precisely tailored to the employer’s needs and must act only against activities or businesses that compete directly with the employer. Does your noncompete prohibit the former employee from owning stock in a publicly-traded competing company? If it does, regardless of whatever other terms it contains, most Virginia courts would likely strike it as unenforceable.