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.