By Julia Di Vito
The enforceability of a restrictive covenant in an employment agreement, including a non-competition, non-solicitation, or non-disclosure provision, depends greatly on the state in which the covenant is to be enforced. In Virginia, courts will not “blue pencil” or modify restrictive covenants, and thus if the restrictive covenant is unenforceable as written, then a court will not enforce it at all. Other states are more flexible and will enforce restrictive covenants to the extent they are reasonable. Despite the history of challenges to enforcing restrictive covenants in Virginia, a recent decision eliminated a common defense to the enforceability of restrictive covenants in those courts.
Assurance Data, Inc. v. Malyevac, a Virginia Supreme Court decision from late 2013, dealt with a typical procedural tactic used in Virginia to defend against the enforcement of a restrictive covenant: the demurrer. A demurrer is used by a defendant to allege that the plaintiff in the case has failed to state a claim upon which the requested relief may be granted. A demurrer is similar to a motion to dismiss and asks the court to determine whether, even assuming the facts in the plaintiff’s complaint are true, the plaintiff pleaded a case with sufficient legal support.
In the Assurance Data case, Assurance Data sued its former employee, John Malyevac, with whom it had an employment agreement containing non-competition, non-solicitation, and non-disclosure provisions. Assurance Data claimed Malyevac had violated the terms of this agreement and thus sought to enforce the restrictive covenant. At the trial court, Malyevac filed a demurrer claiming that the non-compete and non-solicitation provisions of the restrictive covenant were overbroad and thus unenforceable. Specifically, Malyevac argued that due to an ambiguous duration term in the non-solicitation provision, the restrictive covenant was unenforceable on its face. The trial court agreed with Malyevac and sustained the demurrer, which dismissed Assurance Data’s case completely before it was able to argue its case at trial.
Assurance Data appealed the case to the Virginia Supreme Court. The Virginia Supreme Court reversed the trial court’s decision and held that a demurrer is inappropriate for determining whether a restrictive covenant is enforceable. It reasoned that “restraints on competition are neither enforceable nor unenforceable in a factual vacuum.” Additionally, “[a]n employer may prove a seemingly overbroad restraint to be reasonable under the particular circumstances of the case.” Thus, the Virginia Supreme Court concluded that a trial court cannot rule on the merits of whether a restrictive covenant is unenforceable without permitting the employer to present evidence to demonstrate that it is enforceable as to the specific employee in the specific factual situation.
This case signifies that in Virginia, an employer seeking to enforce a restrictive covenant always will get the opportunity to present evidence at trial as to why the covenant is enforceable. Although it is too soon to tell the full impact of this decision, it makes it more difficult for former employees to defend against restrictive covenants in Virginia. At the very least, employers can rest assured they will get their day in court to argue in favor of enforcement. Given the challenges employers face in enforcing restrictive covenants in Virginia, the Assurance Data decision is a welcome change.
About the Author: Julia Di Vito practices in the areas of government contracts, litigation, employment, and labor. She may be reached at [email protected].