More and more businesses in Virginia are turning to non-compete agreements to protect their competitive advantage. However, there are certain requirements that must be met before these agreements can be enforced.
Overview of Non-Compete Agreements
Non-compete agreements are contractual promises between two parties, usually an employer and an employee. The goal of these agreements is to ensure that a former employee will not participate in behavior or acts, or new employment that will compete with their former employer’s business.
While asking certain types of employees to sign a non-compete agreement is legal in the state, the employer will have the burden of showing that an employee has violated the agreement. They will need to show that the employee has caused their business direct harm before they can pursue penalties.
When Is a Non-Compete Enforceable?
A non-compete agreement can only be enforced if the following conditions are met:
- The agreement is in accordance with the established public policy in Virginia.
- The restrictions in the agreement are not greater than necessary to safeguard the employer’s legitimate business interests.
- The terms of the agreement will not result in an undue hardship in allowing the employee to find another job or earn a suitable income.
How Courts Decide if a Non-Compete Agreement Is Enforceable?
While the courts have recognized that companies should be able to protect their business from employees who have moved on to different employment opportunities but continue in the same industry, the activities they believe can be restricted will depend on the facts.
For instance, to make their decision, the court will often focus on the following factors:
- The types of activities that are being restricted and the extent of this restriction
- The geographic scope of the restriction, since the range must closely correspond to the area where the former employer actually conducts business
- The duration of the restriction
However, if any part of the non-compete clause is unreasonable, the court can invalidate the entire agreement. For example, if the former employer does not have a legitimate business interest in prohibiting the restricted activity or if the restricted activity is overly broad, the court will not likely enforce the non-compete.
What Employees Are Covered by the Non-Compete Agreement?
In general, non-compete agreements have been used when an organization hires an employee with access to trade secrets or certain types of sensitive practices and ideas. However, recent legislation indicates that companies cannot impose non-compete restrictions on low-wage employees.
Low-wage employees are those whose average weekly earnings are less than the state’s average weekly wage. These employees also include unpaid workers, such as students, interns, trainees, and apprentices.
Need Information Regarding Your Company’s Non-Compete Agreement? Contact Goodman Allen Donnelly Today
If your business is considering drafting a non-compete agreement or wants to ensure the agreement is enforceable, contact Goodman Allen Donnelly today.
Our firm regularly prepares and reviews non-compete and non-solicitation agreements to ensure that businesses can protect themselves from employees who try to solicit customers or use confidential information.