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Non-Competition Agreements – Are Your Company's Agreements Enforceable?

Thursday, May 10, 2007   (0 Comments)
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A Member article by Coalition Exchange Member Merritt Green, Principal of General Counsel, P.C.

Non-Competition Agreements provide a valuable tool for employers to protect their most important asset – their business relationships with clients. However, because non-competition agreements limit the ability of an employee to obtain subsequent employment, courts require that they be narrowly tailored to protect the legitimate business interests of the employer. If they are too broad, they will not be enforceable.

A recent decision by the Virginia Supreme Court, Omniplex World Services Corp. v. U.S. Investigations Services Inc., 270 Va. 246 (Va. Sept. 16, 2005), emphasizes the importance of narrowly-tailored non-competition agreements. In this case, Omniplex provided “top secret” security-cleared staffing to a “Sensitive Government Customer.” Omniplex’s non-competition agreement provided, in relevant part, that

Employee hereby covenants and agrees that, . . . following any termination of employment from Omniplex . . . Employee shall not . . . (1) accept employment, become employed by, or perform any services for Omniplex’s Customer for whom Employee provided services or for any other employment in a position supporting Omniplex’s Customer, if the employment or engagement requires Employee to possess the same level of security clearance Employee relied on during his employment with Omniplex. . . .

The employee at issue in this case provided “general administrative security support, monitoring alarms and intrusion detection systems” at the government agencies’ headquarters. After a few months of employment with Omniplex, the employee received a job offer with another staffing company as an administrative assistant for the “Sensitive Government Customer.” After the employee commenced work with the new employer, Omniplex filed litigation against the employee for breach of contract and the new employer for tortious interference with contract and civil conspiracy, seeking $1,350,000 in damages and injunctive relief.

The Virginia Supreme Court affirmed the decision of the Fairfax Circuit Court that the non-competition agreement was overbroad and, thus, unenforceable. The Court stated that “[t]his provision precludes [employee] from working for any business that provides support of any kind to the [Sensitive Government Customer], not only security staffing businesses that were in competition with Omniplex.” Omniplex, 270 Va. at 250. “Thus, for example, the non-competition agreement precludes [employee] form working as a delivery person for a vendor which delivers materials to the [Sensitive Government Customer] if such security clearance was required to enter [secured] installation even though the vendor was not a staffing service competing with Omniplex.” Id. Accordingly, because Omniplex’s non-competition agreement was not limited to employment that would be in competition with Omniplex, the Virginia Supreme Court ruled that it was overbroad and not enforceable.

So, what does this mean for employers? Take the time to review your non-competition agreements (or have an attorney review the agreement). Often times, the instinct for an employer is to have the non-competition agreement as broad as possible to provide protection for their business and keep a former employee from competing. This instinct, however, will result in the non-competition agreements being unenforceable. Therefore, when reviewing your company’s non-competition agreement, ask yourself the following questions: (1) what is our business; (2) who are our customers; and (3) how can a non-competition agreement be narrowly tailored to protect our business and customer relationships.

If your company ensures that its non-competition agreement is carefully (and narrowly) tailored solely to protect its vital business interests (and no more), it should be enforceable.

About Merrit Green, General Counsel, P.C. Founded by Merritt Green in 2004, General Counsel, P.C. was established to satisfy the legal needs of businesses in Virginia, Maryland and Washington, D.C. Striving to be the “legal partner and trusted advisor” of our clients, our representation can be divided into four primary categories: business/corporate law; labor/employment law; state/federal court litigation; and estate/business succession planning. For additional information on General Counsel, P.C., please visit our website: www.generalcounsellaw.com or email: mgreen@generalcounsellaw.com. General Counsel, P.C. serves as corporate counsel for The American Small Business Coalition.



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