Legal Insider: States Start Non-Compete Agreement Reform

This is a sponsored column by attorneys John Berry and Kimberly Berry of Berry & Berry, PLLC, an employment and labor law firm located in Northern Virginia that specializes in federal employee, security clearance, retirement and private sector employee matters.

By John V. Berry, Esq.

Several states (not Virginia yet), have made moves to restrict the using unreasonable non-compete agreements with employees. Our practice has shown us that Virginia non-compete agreement reform is needed.

We have represented employers and employees in our practice and have found that many non-compete agreements in Virginia are extremely over broad and unreasonable.

What are Non-Compete Agreements?

A non-compete agreement is simply a contract between an employee and an employer in which the employee agrees not to enter into competition with the employer during or after employment.

Reasonable non-compete agreements are helpful and often necessary for employers to hire individuals without risking that they will then lose their customers if an employee leaves and tries to take clients with them. However, these types of agreements have started to get completely unreasonable.

Currently, non-compete agreements have not been restricted by Virginia law but regulated through the courts. Employees in Virginia who sign non-compete agreements can be held to them only if they pass this three-part test:

• Is the restriction reasonable in the sense that it is no greater than is necessary to protect the employer in some legitimate business interest?
• From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing his legitimate efforts to earn a livelihood?
• Is the restraint reasonable from the standpoint of a sound public policy?

Paramount Termite Control v. Rector, 380 S.E.2d 922 (Va. 1989).

However, the problem with the status quo is that employers have the upper hand, for the most part, with these types of agreements and enforcement. Take for example an employee making $50,000 a year, who signed an unreasonable non-compete agreement but is threatened by a large law firm and faced with massive legal expenses in challenging it.

In short, it is time for Virginia to provide safeguards for employees in this area.

Examples of Abuse for Non-Compete Agreements

Reform for non-compete agreements is needed due to a number of abuses occurring in Virginia and elsewhere. Some examples of the types of abuses seen:

• A physician works in Reston, Virginia and signs a non-compete agreement which bars her from practicing medicine for 3 years in the tri-state area forcing her to move to another region to obtain work.
• A restaurant worker, making minimum wage, is required to sign a non-compete agreement prohibiting them from working for other restaurants in a 10-mile area.
• An unpaid office intern for a government contractor is required to sign a non-compete agreement prohibiting them from working for another government contractor for a period of 3 years.
• A new program manager is hired by a company and signs a non-compete agreement. Two weeks later the employer determines that the hire is not a good fit and terminates the employee. Despite the fact that there is no misconduct or cause for the firing the employee is unable to work for a similar employer for 2 years.

Some States Begin to Change Non-Compete Agreements

There is hope for reform. Many states have begun changing non-compete agreement law. Washington, New Hampshire, Massachusetts, Maine and other states have led the way in attempting non-compete agreement reform. These states have not adopted a uniform approach, but provide some good ideas for Virginia.  Some examples:

Wage Requirements — New Hampshire bars the use of non-compete agreements for those making less than $14.50 an hour. Washington restricts non-compete agreements to those employees that make over $100,000 a year. Maine prohibits non-compete agreements for those making a wage at or below 300% of the federal poverty level.

Trial Period Before Non-Compete is Binding — Maine has enacted a law providing that an employee must have worked for the employer for a period of 1-year or 6 months after signing the agreement (whichever is later) for a non-compete agreement to be enforceable.

Non-Compete Invalid if Fired Without Cause or Laid Off — Massachusetts law prohibits the enforcement of a non-compete agreement against an employee who has been terminated without cause or laid off. This is critical because the worst case scenario is where an employee has been terminated without any misconduct but then is barred from obtaining a new job in the same field for a significant period of time.

Leveling the Field for Employees — As I mentioned, it is often the case that employers often feel free to have their law firms send threatening letters to employees arguing that they cannot work in the same field even if a non-compete agreement is completely unreasonable. Faced with this, many individuals feel that they cannot challenge an agreement that is otherwise unlawful.

Washington has done a good job on this front. The Washington statute is very good and it has a number of other employee protection mechanisms such as requiring an employer to pay an employee’s legal fees and damages should they seek to enforce an unreasonable non-compete agreement.

Suggestions for Non-Compete Reform in Virginia

Non-compete agreement reform is seriously needed in Virginia because these types of agreements have been becoming more unreasonable in recent years. I would recommend that Virginia enact a statute that combines some of the different approaches used by the other states listed above. An example of a new Virginia statute that could start to fix the problem follows:

• Workers making less than $75,000 should be excluded from non-compete agreements
• An employee could not be held to a non-compete agreement if they were not employed for at least a year by the employer or terminated or laid off without misconduct
• Employees faced with an employer that seeks to enforce an unreasonable agreement should be penalized by having to pay the employee’s legal fees and a small amount of damages

This proposal could be modified, but Virginia should take some action to change what has become an uneven field for employees faced with unreasonable non-compete agreements.

Conclusion

If you need assistance with a non-compete agreement or other employment issues, please contact our office at (703) 668-0070 or at www.berrylegal.com to schedule a consultation. Please also visit and like us on Facebook at www.facebook.com/BerryBerryPllc.