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Posted on Thursday, September 26, 2013

How do Courts Determine Enforcement of a Non-Compete?

The Virginia Supreme Court recently addressed this issue in
an interesting non-compete case that arose in Fairfax County.  The non-compete agreement that an employee
signed with a computer company prohibited him from engaging in certain
competitive actions for “twelve (12) after the date of termination.”  Based on other language in the contract, it
appears the employer intended it to run for 12 months after termination, but the word “months” was not included in
the version the employee signed.
When the employee left the computer company to work for an
alleged competitor, the company sued the employee in Virginia state court for
violation of the non-compete.  Rather
than answer the lawsuit on the merits, the former employee asked the state
court to dismiss the case on the ground that the non-compete was unenforceable
because, among other reasons, there was missing language regarding duration.   The
company argued that it was premature to dismiss the case without  first giving the company a chance to present
evidence against the employee for violating the non-compete.
Although the employee was successful in getting the case
dismissed at the state trial court level, the Virginia Supreme Court recently
reversed that decision and held that non-compete cases should not be dismissed
early on in litigation based solely on the language of the provision at issue,
without giving the employer an opportunity to present evidence on the alleged
violation.  In one notable quote, the
Virginia Supreme Court stated that “an employer may prove a seemingly overbroad
restraint to be reasonable under the particular circumstances of the case.”
This decision by the Virginia Supreme Court has garnered
much attention. Up until this point, the generally accepted view was that
courts would first look at the language of a non-compete provision to make sure
that as written the provision was
enforceable, and only then would the court delve into the underlying factual issues
in the case.  But with this decision, the
Virginia Supreme Court appears to be instructing that when determining
enforceability, courts in Virginia should employ a more blended analysis that looks
not only at the language of the non-compete, but also factual evidence offered
by the employer in support of its case. Such cases are therefore less likely to
be dismissed early.

Declan Leonard is managing
partner of the Washington, DC regional business law firm Berenzweig
Leonard, LLP
. He can be reached at DLeonard@BerenzweigLaw.com.  

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