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Walking the Tightrope on Non-Compete Agreements

Timothy R. Hughes, Esq.
Hughes & Associates, P.L.L.C.

A recent Supreme Court of Virginia decision illustrates the difficulty in striking a balance on the issue of non-compete agreements.

A variety of industries have embraced contracts which contain non-competition provisions over the last twenty years. Such clauses offer an employer a chance to protect their client base and contacts from exploitation by prior employees. Such clauses must be balanced against the law’s desire to permit employees a chance to earn a living. A recent decision by the Supreme Court of Virginia highlights the difficult task courts face in striking the balance on this contractual tightrope.

The construction and real estate industries are no strangers to such clauses. Design firms regularly use such clauses to protect their client base. Other types of companies are starting to use these clauses as well. It is advisable to understand the law surrounding such clauses to understand their strengths, weaknesses and inherent limitations.

Virginia Law on Non-Compete

As in many states, Virginia provides that non-compete agreements are enforceable as a general rule. Non-compete agreements are, however, disfavored by the courts as a restraint on trade. The terms of such agreements are strictly construed against the employer and ambiguities are construed in the employee’s favor. In layperson’s terms, “the tie goes to the employee” in a close call.

Similarly, Virginia courts require that such provisions be narrowly drawn to protect the employer’s legitimate business interest and to not unduly restrict the employee’s ability to earn a living. The courts engage in a case by case analysis to evaluate the merits of each such clause and surrounding circumstances.

The Omniplex Factual Background

The Supreme Court of Virginia recently addressed these basic principles in the Omniplex v. U.S. Investigations case. Omniplex provides security services to the government and private sector clients. Omniplex won a bid to provide staffing for a government agency known as a “Sensitive Government Customer” on a project called “Project Eagle”. Staffing on the project required a validated top secret clearance.

When Omniplex won the bid, Kathleen Schaffer worked for MVM, another staffing company. After learning that MVM would no longer work on Project Eagle, Ms. Shaffer applied to work for various staffing agencies, including The Smith Corporation. Schaffer was offered a position with Omniplex on Project Eagle. She signed a one-year employment agreement with a non-competition provision that provided she would not be employed by a customer of Omniplex or any other employer if the employment required the same level of security clearance required by Omniplex.

Schaffer worked for Omniplex in general security support monitoring alarm systems at an overt location. After several months, the Smith Corporation offered her a position with higher pay as an administrative assistant at a covert location. Her new position involved obtaining visas and passports. Schaffer returned her signing bonus and began work for The Smith Corporation. Omniplex sued.

The Supreme Court Ruling

The Supreme Court of Virginia held that the non-compete was unenforceable. The Court found that the clause prohibited Schaffer from working for any business that provides support of any kind to the Sensitive Government Customer, not only security staffing businesses in competition with Omniplex. The Court ruled that because the clause was not limited to employment in competition with Omniplex, the covenant was overly broad and unenforceable.

Conclusion

The Omniplex case demonstrates the difficult balancing act required in non-compete clauses. While the employer often wants the broadest protection possible, overly broad language can in fact invalidate the entire clause and gut all protection. It is sometimes best to ask for more modest protection to ensure a greater chance of enforcement.