| Non-compete Clause |
Shopping Clause |
Website Links For Clause |
Information AboutNon-compete Clause |
| CATEGORIES ABOUT NON-COMPETE CLAUSE | |
| contract law | |
| employment law | |
| contract clauses | |
|
A non-compete clause, or '''covenant not to compete''' ('''CNC'''), is a term used in Contract Law under which one party (usually an employee) agrees to not pursue a similar profession or trade in competition against another party (usually the employer). The use of such clauses is premised on the possibility that the employee might release trade secrets and or competitive advantage upon his or her termination or resignation. Most jurisdictions in which such contracts have been examined by the Court s have deemed them to be legally binding, so long as the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete. Courts have held that, as a matter of Public Policy , an individual can not be barred from carrying out a trade in which he has been trained except to the extent that is necessary to protect the employer. These are becoming more popular among companies within the United States and abroad and may or may not be enforceable in particular states within the United States. ENFORCEABILITY IN THE COMMONWEALTH OF VIRGINIA In Virginia, the enforceability of covenants not to compete are governed by Common Law principles. As restrictions on trade, CNCs are not favored by Virginia courts and will only enforce narrowly drafted CNCs that do not offend public policy. In ; (2) not unduly harsh or oppressive in restricting the employee’s ability to earn a living; and (3) not against public policy. ''Paramount Termite Control Co., Inc v. Rector'', 380 S.E.2d 922, 924 (Va. 1989). Legitimate business interest In Virginia, courts weigh the (1) function, (2) geographic scope and (3) duration of the CNC against the employer’s legitimate business interests to determine its reasonableness. See ''Advanced Marine Enters., Inc. v. PRC Inc.'', 501 S.E.2d 148, 155 (Va. 1998); ''Simmons v. Miller'', 544 S.E.2d 666, 678 (Va. 2001) (stating that the function, geographic scope and duration of the CNC must be considered together to determine the reasonableness of the restriction). Additionally, CNCs are only reasonable if they prevent the employee from entering into direct competition with the employer and must not encompass any activity in which the employer is not engaged. See e.g. ''Omniplex World Servs. Corp. v. US Investigations Servs., Inc.'', 618 S.E.2d 340, 342 (Va. 2005) (“covenants not to compete have only been upheld when employees are prohibited from competing directly with the former employer or through employment with a direct competitor.”); See ''Motion Control Sys. v. East'', 546 S.E.2d 424 (Va. 2001). Reasonable restriction on employee's ability to earn a living Second, to enforce the CNC, a Plaintiff must show that it is not unduly harsh or oppressive in restricting the employee's ability to earn a living. In Virginia, a CNC is not unduly harsh or oppressive if balancing its function, geographic scope and duration the employee is not precluded from (1) working in a capacity not in competition with the employer within the restricted area or (2) providing similar services outside the restricted area. See ''Paramount'', 380 S.E.2d at 925. Public policy Third, to enforce a CNC, a Plaintiff must show the CNC is reasonable from the standpoint of a sound public policy. Virginia does not favor restrictions on employment and therefore CNCs are generally held against public policy unless they are narrowly drafted as enumerated above. In Virginia, a CNC does not violate public policy if the restrictions it imposes do not create a monopoly for the services offered by the employer or create a shortage of the skills provided by the employee. See ''Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick'', 389 S.E.2d 467, 470 (Va. 1990); ''Paramount'', 380 S.E.2d at 925. SEE ALSO |
|
|