In recent years, courts have largely been ruling against employers in cases of disputed non-compete agreements. A non-compete agreement is a provision in an employment agreement which states that the employee, after leaving the employer, will not compete with the employer for business within a certain time frame and a certain geographical radius of the employer. Such provisions are intended to protect the employer but many of them have lately begun to stretch the bounds of what is reasonable, making it increasingly difficult for the employee to find another job.
In one such dispute over a non-compete agreement, John Malyevac signed an employment agreement with Assurance Data, which included a non-compete provision. The provision stated that, after termination with the company, Malyevac would not compete with Assurance Data within a fifty-mile radius of its headquarters for a duration of “twelve (12) [sic] after the date of termination.” After Malyevac left his employment with Assurance Data and went to work for another company, Assurance Data sued Malyevac for alleged breach of employment contract.
Malyevac filed a demurrer to the complaint, saying that it failed to state a claim upon which relief could be granted. A demurrer, also known in most courts as a motion to dismiss, is when the defendant asks the court to dismiss the case based solely on the allegations given in the complaint, rather than the actual facts. Malyevac also claimed that the non-compete agreement was too broad and therefore unenforceable. For example, he pointed out, the provision of prohibiting the employee from soliciting for customers for “twelve (12) [sic] after the date of termination” does not say whether that applies to days, weeks, months, or years. Six to twelve months is a common duration for these types of agreements, but without specifically saying so in the agreement, it would be difficult for a court to uphold.
Assurance Data argued that the court could not decide how enforceable the non-compete agreement is on demurrer, because doing so would deny the company the opportunity to present evidence that the restraints of the agreement are reasonable and necessary to protect its legitimate business interests. The Fairfax County Circuit Court ruled in favor of Malyevac and sustained the demurrer without leave to amend. Assurance Data appealed the ruling.
The Virginia Supreme Court, however, disagreed, saying that the enforceability of non-compete agreements must be determined on a case-by-case basis “balancing the provisions of the contract with the circumstances of the businesses and employees involved.” The court agreed with Assurance Data that, in cases of disputed non-compete agreements, it is the responsibility of the employer to provide evidence that the scope of the agreement is no more than that which is necessary to protect the legitimate business interests of the employer. Such a determination can only be made after considering three elements of the non-compete agreement: 1) how the agreement would restrict the employee’s job functions; 2) the geographic scope of the restriction; and 3) the duration of the restriction.
The ruling is significant for both employers and employees. Although the current court ruling is in favor of the employer, such favor is conditional upon the employer’s ability to provide sufficient evidence that the scope of its non-compete provision was indeed necessary to protect its business interests. Employers may want to take extra care in the future to ensure that their non-compete provisions cover only what is necessary to protect them and no more. The ruling is also significant for employees who may want to take a closer look at their employment agreements before signing.
The business litigation attorneys at Lubin Austermuehle represent employees, executives, employers, business owners and professionals such as doctors, dentists, lawyers and accountants regarding non-competition agreements and other claims throughout the Chicagoland area, including Cook, DuPage, Lake, Kane, McHenry and Will Counties; and in the Mid-West region, including Indiana, Wisconsin and Iowa. We handle these types of cases in the federal court in Chicago and in the state courts in Chicago, Wheaton and Waukegan.