Non-Competition Agreement Claim Revived by Virginia Supreme Court

The Virginia Supreme Court recently answered a question long asked by employment lawyers:  can a court decide a non-competition lawsuit just by reviewing the non-competition agreement?  The Court answered “no,” which means that employers now have a better opportunity to enforce their non-competition agreements and employees must be prepared for extensive litigation after signing and purportedly breaching a non-compete.  The decision is Assurance Data, Inc. v. Malyevac.

The Court overturned a lower court’s ruling dismissing a non-competition lawsuit at the very start of litigation because of the agreement’s apparent unreasonableness.  The agreement contained a non-solicitation clause with a typographical error, prohibiting solicitation “during the term hereof, and for a period of twelve (12) after the date of termination hereof.”  Missing a word, the non-solicitation clause did not state the relevant time period of its duration (whether twelve days, weeks, months, or years).  As a result, the trial court ruled the whole agreement overbroad and unenforceable as a matter of law and dismissed the suit.  The Virginia Supreme Court, however, disagreed and reinstated the lawsuit.

In a decision that promises to reinvigorate enforcement of non-competition agreements, the Court held that the trial court inappropriately “short-circuited” the litigation process.  It held that the trial court should not have decided the motion to dismiss by ruling on the agreement’s validity.  Rather, it should have determined if the lawsuit itself stated a valid claim, and then, if so, allowed the employer to submit evidence in support of the reasonableness of the agreement.

The Court has thus increased the impact of non-competition agreements by giving employers an opportunity to prove their agreements enforceable in litigation.  This consequently imposes on employees the burden of defending a lawsuit if they breach a non-compete, even one that has a clear error on its face.