Frequently Asked Questions About Virginia Noncompete Agreements
A noncompete agreement prohibits a departing employee from working in a similar field as his or her former employer for a period of time and in a certain geographical area. Put another way, a noncompete agreement is an employment contract that limits where a former employee can seek another job.
Because of this restriction on employee rights, Virginia courts don’t like to enforce noncompete agreements. However, they will do so as long as employers follow certain rules and abide by concepts of fairness. We will address the most significant rules and concepts below.
What Makes a Noncompete Agreement Enforceable?
Like many other states that enforce noncompete agreements, Virginia will only enforce those that it deems are reasonable. In determining if a noncompete agreement is reasonable, Virginia courts will examine three primary factors:
- Whether the noncompete agreement restricts the former employee as little as possible while still protecting a legitimate business interest of the employer,
- Does not unduly burden the former employee’s ability to find another job, and
- Will not conflict with public policy (public policy refers to unwritten rules and principles regarding the public good).
While simple in theory, courts struggle with applying these factors to real world lawsuits involving noncompete agreements. Every case will have its own set of facts and circumstances that can convince the court to enforce the noncompete agreement in one case, but declare it invalid in another, very similar case.
Besides being reasonable, another requirement for a valid noncompete agreement is that each side must provide sufficient consideration. Consideration is the legal term for something of value each side must provide to create a contract. This makes sense because it wouldn’t be fair to hold one side to a promise it made unless the other side also provided something of value.
For example, imagine you have a car you want to get rid of. You have a friend who wants the car and asks to have it for free. You agree because you like your friend. However, you change your mind because someone offers to pay you $10,000 for the car. Can you friend successfully sue you for breach of contract? No, because there was no contract.
You promised your friend the car, but they promised you nothing in return. In other words, your friend did not provide any consideration. This same concept applies to noncompete agreements. If an employee is agreeing to restrict his or her ability to earn a living, they must receive something of value in return from the employer.
Generally speaking, a job offer or cash payment conditioned on signing a noncompete agreement will most likely constitute sufficient consideration. However, Virginia courts are unclear if a promise of continued employment will constitute sufficient consideration. Virginia is unusual in the level of uncertainty that exists on what constitutes sufficient consideration to enforce a noncompete agreement.
Can a Noncompete Agreement Still Be Enforced if the Employee Was Fired?
Yes. However, the parties can choose to negotiate a provision into the noncompete agreement that declares the agreement void when the employee’s job ends a particular way, such as being fired without cause.
What Are Some Common Limitations to Noncompete Agreements?
There are two main limitations to the enforceability of a noncompete agreement: geography and time.
A noncompete agreement may not be overly broad in terms of where it applies. However, a court will examine the reasonableness of a geographical limitation in relation to other parts in the noncompete agreement.
For instance, a court is more likely to allow the broader geographic application of a noncompete agreement if it lasts for a short amount of time or the employer provides the employee with significant consideration, like a large cash payment.
Like the geography limitation, a court will analyze whether a noncompete agreement’s time limitation is appropriate by comparing it to other provisions in the contract. Besides the geographical scope of the noncompete agreement and the amount of consideration the employer gives the employee, other factors Virginia courts may consider include:
- How much time and effort the employer put into developing the employee.
- Nature of the employer’s business.
All else being equal, the shorter the period of time and smaller the geographical area a noncompete agreement applies to, the more likely a court will enforce the noncompete agreement.
What Happens if an Employer Sues a Former Employee Claiming a Violation of a Noncompete Agreement?
A lawsuit is possible, but before it gets to that point, the employer will probably try to resolve the situation without going to court. The employer might send a letter to the former employee (or the former employee’s new employer) explaining the situation and asking the former employee to stop the alleged violation.
Assuming an employer sues the former employee, the employer has the burden of proving that the former employee signed a valid noncompete agreement. This includes proving that the restrictions placed on the former employee are reasonable.
If an employer proves that the former employee violated a valid noncompete agreement, Virginia courts may award the employer monetary and/or injunctive relief.
Monetary relief may include attorney’s fees, lost profits and liquidated damages (these are predetermined damages set forth in the noncompete agreement; not all noncompete agreements will have a liquidated damages provision, though).
Injunctive relief refers to court orders that tell the former employee to do, or not do, a particular thing. Examples of injunctive relief might include forcing the employee to stop working at a competing employer or making the former employee cease business operations that compete against the former employer.
If a court determines that only part of the noncompete agreement is invalid, it will refuse to enforce any of it. Virginia does not have a “blue pencil rule,” which allows courts to remove invalid portions of a contract and enforce the valid parts. In Virginia, noncompete agreements are an all-or-nothing proposition.
And if a part of the noncompete agreement is confusing, the court will interpret in a way that helps the former employee and hurts the employer.
For More Information
To learn more about the enforceability of noncompete agreements in Virginia, don’t hesitate to contact us. You will have the opportunity to speak with an employment attorney who has experience handling these types of employment contracts.