Virginia Supreme Court Limits Opportunity to Obtain Quick Dismissals of Noncompete Cases

When companies sue their former employees on the ground that they allegedly breached a broadly-worded noncompete agreement, a common defense tactic has been to file a demurrer, arguing that the complaint fails to state a claim upon which relief can be granted. The thinking was that if the noncompete agreement at issue was overly broad on its face, it would be deemed unenforceable as a matter of law and incapable of supporting a lawsuit. Those days are over, according to Assurance Data Inc. v. Malyevac [an enhanced version of this opinion is available to lexis.com subscribers], an employer-friendly ruling of Virginia's high court decided earlier this month.

Assurance Data, Inc. (ADI) entered into an agreement with John Malyevac which required Malyevac to sell ADI's computer products and services. The agreement contained non-competition, non-solicitation, non-disclosure and return-of-confidential-information provisions. A few months after entering into the agreement, Malyevac resigned. ADI filed a complaint in Fairfax County Circuit Court alleging that Malyevac violated the agreement. Malyevac demurred, asserting that the complaint failed to state a cognizable claim.

Like the 12(b)(6) motion to dismiss used in federal court, a demurrer tests the legal sufficiency of the facts alleged in the complaint and determines whether a complaint states a cause of action upon which relief can be granted. When ruling on a demurrer, a court may not decide the merits of a claim. (That's what trials are for). If a complaint contains sufficient facts to inform a defendant of the nature and character of a claim, the complaint will survive a demurrer.

According to Malyevac, the non-competition and non-solicitation clauses of the agreement were overbroad and unenforceable because, for example, the non-solicitation requirement provided that it would be in force for a period of "twelve (12)" but did not specify days, weeks, months or years. ADI argued that it was entitled to present evidence to meet its burden of demonstrating the reasonableness of the restraint provisions.

The circuit court sustained the demurrer without leave to amend, holding that, as a matter of law, the provisions at issue were unenforceable. On appeal, Malyevac asserted that a circuit court can determine that no amount of evidence would render the restraints reasonable and enforceable. ADI contended that the court improperly decided the merits of Malyevac's unenforceability argument at the demurrer stage and denied ADI the opportunity to present evidence that the restraints were reasonable and enforceable. The Virginia Supreme Court agreed with ADI.

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

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