And Another Non-Compete Bites the Dust
Employers and lawyers alike know how tough it can be to draft a non-compete certain to be enforceable in Virginia. On March 6, 2013, in an Opinion Letter, Judge White of Fairfax Circuit Court denied a motion for preliminary injunction seeking to enforce a non-compete on the grounds that success on the merits was unlikely based on the overbroad geographic and durational scope of the restrictions. See Wings, LLC v. Capital Leather, LLC, Case No. CL-2014-9.
Wings, LLC is a company that provides commercial and residential vinyl, fabric and leather repair services, mostly focused on repairing car interiors. Two technicians employed by Wings signed agreements containing both non-solicitation and non-compete provisions. The non-compete provision read as follows:
Employee agrees that during Employee’s employment with Employer and for a twenty-four (24) month period immediate following termination of Employee’s employment with Employer (for whatever reason), Employee will not be directly employed in a position that is the same, or substantially the same, as an employment position held by Employee with Employer during the twelve (12) months preceding Employee’s termination date, with a business engaged in providing material, labor or services that compete (or, upon commercialization would compete) with the material, labor or services provided by Employer at the time of Employee’s termination (the provision of such material, labor or services is hereinafter called a “Competing Business”). Employee further agrees that during Employee’s employment with Employer and for a twenty-four (24) month period immediate [sic] following termination of Employee’s employment with Employer (for whatever reason), Employee will not maintain any controlling interest in a Competing Business. Notwithstanding anything herein to the contrary, this Section 4.4 [sic] is not intended to restrict Employee from performing work for a Competing Business in some role that does not actually compete with Employer’s business. This restriction shall only apply within any state of the United States or country outside the United States in which, during the twelve (12) months preceding Employee’s termination, Employer has conducted or conducts business.
Within a year of signing the agreements containing the non-compete provisions, both technicians left to go work for a competitor (interestingly, the son of the owner of Wings). Wings filed a Motion for Temporary Restraining Order and Preliminary Injunction, seeking to enjoin the two technicians from working for this competitor.
Although determining that the two technicians had, in fact, breached the agreements as written, Judge White denied the motion, finding that the Wings would be unlikely to succeed on the merits of the claim given the unenforceability of the restrictive covenants.
The court focused on two problems with the non-competes: the geographic scope and duration of the restriction. The court found that the geographic restriction was overly broad and not narrowly drawn to protect the legitimate business interest of the employer, pointing out that the geographic limitation would prevent the two technicians from working even in parts of Virginia 300 miles away from anywhere Wings actually did business.
The court also found that 24 month period contained in the non-compete was overly broad. Acknowledging that covenants lasting two years (or even more) have been found enforceable in Virginia, the court stated that the duration restriction must be considered in the context of the other restrictions. The court explained that Wings had put forth no evidence as to why a restriction lasting two years was narrowly tailored to meet its legitimate business interest and that such a lengthy restriction would put a significant burden on the ability of the technicians to earn a living.
Wings had certainly made efforts to limit the restrictive covenants, particularly with regard to prohibited activities. In fact, Wings’ primary focus with regard to the issue of likelihood of success on the merits related to whether the technicians were acting in violation of the agreements and not whether they were enforceable. This case is a reminder that each and every component needs to be carefully considered –along with the potential implication of each and every component–and the restrictions drafted as narrowly as possible.