After an extended run of Virginia Supreme Court decisions in which the Court for one reason or another found a way not to enforce a covenant, the Court last year signalled a renewed willingness to permit non-compete provisions their day in court. In Assurance Data, Inc. v. Malyevac, 286 Va. 137, 737 S.E.2d 804 (2013), the Supreme Court clarified that a demurrer, on which the facial validity of a non-compete provision is determined without examination of evidence, is not the appropriate procedural mechanism for determining the enforceability of a restrictive covenant particularly where the employer offers to put on evidence to prove the covenant's reasonableness.
The Court held that, because a demurrer does not permit the trial court to evaluate and decide the merits of the claim set forth in a complaint, the circuit court erred when it sustained the former employee's demurrer on the ground that “the provision is unenforceable” as a matter of law and dismissed the entire complaint for that reason. The opinion distinguished a 2002 case in which the Court affirmed a circuit court's dismissal of a non-compete case on the grounds that the covenant at issue was unreasonable on its face. Specifically, the Court noted that, in Modern Environments v. Stinnet, 263 Va. 491, 561 S.E.2d 694 (2002), the employer failed to offer argument or evidence to prove its legitimate business interests were served by the particular restraint at issue. In contrast, Assurance Data opposed the demurrer precisely on the ground that it sought to present evidence to prove that the restraint was reasonable and no greater than necessary to protect its legitimate business interests.
The Supreme Court held that, rather than dismissing the case, the circuit court should have permitted Assurance Data to present evidence to demonstrate that the covenant was reasonable when evaluated against the well-established standard for determining the enforceability of restrictive covenants, i.e., that the restraint was no greater than necessary to protect its legitimate business interests, was not unduly harsh or oppressive in curtailing the former employee's ability to earn a livelihood, and was reasonable in light of sound public policy.
Because restrictive covenants are restraints on trade, they are disfavored under Virginia law. Courts generally examine three aspects of non-competition covenants for reasonableness: (1) duration of the restriction; (2) geographic scope; and (3) the scope of activity being restricted.
Timothy M. McConville leads the labor and employment group at the law firm of Odin, Feldman & Pittleman, P.C. in Reston, Virginia. Mr. McConville may be reached at 703-218-2119 or email@example.com. Follow him at laborandemploymentlawcocktail.com and on Twitter @worklawguy.