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Contracts and Commercial Law

Virginia Won't Allow You to Blue-Pencil That Non-Compete

 In Virginia, covenants not to compete (a.k.a. non-competition agreements or simply "noncompetes") are considered restraints on trade and are therefore disfavored in the law. Unlike California, which prohibits them outright, Virginia will enforce such agreements if (and only if) they (1) satisfy the general principles of contract formation and enforceability, and (2) are no broader than necessary to protect the employer's legitimate business interests. In examining breadth and overall reasonableness, Virginia courts will look primarily to provisions regarding the duration of the restriction, the geographic scope, and the activities that the agreement purports to restrict. What happens, you might ask, if a noncompete is found to be just a tad broader than it needs to be to protect the employer's interests? Will it still be enforced to the "fullest extent of the law," disregarding whatever phrase rendered the agreement overly broad? While that might seem the most fair outcome to many employers, if the agreement is governed by Virginia law, the noncompete will be stricken in its entirety and the employee will be free to compete as if the agreement never existed.

In some states, courts will modify any noncompete deemed unreasonable and enforce it to a degree deemed reasonable. For example, if a noncompete prohibits competitive activity for a 5-year period when the business really can't justify imposing such a restriction beyond one year, the noncompete will be enforced but only for one year rather than the five stated in the agreement. This practice has become known as blue-penciling. Other states allow blue-penciling only if the restrictive covenant as a whole does not reveal any deliberate intent by the employer to place unreasonable and oppressive restraints on the employee. Virginia, however, does not allow blue-penciling at all. As a general rule, unreasonable covenants not to compete will be declared void and unenforceable, and courts will not modify them by re-writing contracts previously agreed to by the parties. 

The question inevitably arises: what if the parties enter into a noncompete agreement that specifically allows for blue-penciling? Critics of Virginia's strict rule against court-modification of non-compete agreements point out that the rule results in uncertainty, as neither the employer nor the employee will know for sure whether a particular noncompete agreement will be deemed enforceable until after litigation and a court order. So what if they agree in advance that if a court were to find the noncompete overly broad for some reason, the agreement should still be enforceable but only to the extent found reasonable? Doesn't matter, say most Virginia courts (though the Virginia Supreme Court has not yet addressed this issue).

 Read the rest of the article at the Virginia Business Litigation Lawyer Blog.

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