Non-Compete Agreements Create Fear And Loathing In The Workplace
We are often asked to provide advice to clients about whether a clause in an employment contract that purports to limit the right or ability of an employee to “compete” with a soon-to-be former employer is valid and enforceable. Typically known as non-compete clauses, the answer is never so simple as yes or no.
Virginia courts are historically hostile to efforts by a former employer to prevent a former employee from working for a living, especially when the employee falls into the rank-and-file. The more senior the employee, and the more confidential information gained by the employee that can be used against the former employer, the more sympathetic the courts are to the employer’s attempt to protect itself when someone with possession of “the keys to kingdom” walks (or is tossed) out the door.
There are typically three players in any discussion about whether a non-complete clause is enforceable: The former employer, the employee, and the new employer. Whether a non-compete is technically enforceable is a question rarely taken to court. This is because such clauses often have what lawyers like to call an in terrorem effect – it doesn’t really matter whether the clause is valid, it only matters that people are afraid of the cost of the lawsuit that might be filed by the former employer.
This isn’t hard to understand. If you are the new employer who has recruited an employee who may have signed a non-compete at his or her last job, are you willing to take the risk you might be sued by the former employer? If you are the employee who signed a non-compete, but you’re looking to move on, do you have the financial resources to pay a defense lawyer if you’re sued by your current/former employer for violating the non-compete? Will your new boss pick up the tab for your defense? Can you survive if your new employer fires you to avoid being sued by your former employer? If you are the former employer, are you willing to undertake the legal expense of suing a former employee, only to be told your non-compete is invalid and, perhaps, none of your employees are bound? Is the former employee really someone who can hurt you that much by spilling the beans to your competitor?
It isn’t the agreement itself that is valuable (or dangerous) – it’s the cost of finding out.