Banker’s Non-Compete Struck Down in Virginia Court

In Nida v. Business Advisory Sys., 44 Va. Cir. 487 (1998), a loan officer resigned from a residential mortgage lender in Winchester, Virginia, and joined a competitor.

The lender sued the loan officer in a Virginia court for breach of a non-compete provision in an independent contractor agreement. The judge held in favor of the loan officer, whose non-compete was overbroad and unenforceable as a matter of law.

Here is a summary of the case with key takeaways for bankers, loan officers, and other financial professionals with non-competes.

In 1995, Nida joined Business Advisory Services (BAS) as a loan officer. Upon hire, he signed an independent contractor agreement which contained a non-compete provision.

The non-compete provided:

Subcontractor will not now, or at any time within five years of the date of this agreement, provide or attempt to provide independent services to any of the Contractor’s clients, lenders, investors, and/or active prospects as of this date, or in any way claim any alliance with Contractor, other than those specific projects assigned by Contractor.

Soon after starting work, Nida realized that BAS was a bad fit and began negotiations to join a competitor. He resigned. Then, after BAS failed to pay Nida past-due commissions and expenses, Nida sued BAS in a Virginia court. BAS counter-claimed for breach of the non-compete provision above.

The court held that the non-compete was unenforceable. For a non-compete to be valid under Virginia law, it must be reasonably limited in duration, function, and geographic scope. In this case, the geographic scope prohibited Nida from providing independent services “anywhere in the world.” The court held that a worldwide restriction against competition was greater than necessary to protect BAS’s business, which was limited to Virginia, and therefore, it was unenforceable.

Other key takeaways for bankers with non-competes:

  • A worldwide restriction without any additional parameters designed to protect the business interests of the employer is likely unenforceable.
  • Even though the non-compete was unenforceable, employees must still fulfill their fiduciary duties owed to the employer.
  • Companies need to carefully draft the terms of restrictive covenants to comply with the current state of the law, or risk invalidating the agreement.

Summary: Employment transitions are fraught with peril for employees and employers. An experienced non-compete lawyer can review the applicable contracts and provide guidance on their enforceability to mitigate risk and avoid litigation.