Sales Manager Non-Compete Struck Down by Chesapeake Court

In 2004, 1800SKILLED hired Seth Nogiec to work as a manager in the marine division of its Virginia Beach office. Nogiec sold staffing services to businesses in the Hampton Roads area.

When Nogiec was hired, he signed a contract, the “Employee Restrict Covenant,” which stated:

Employee . . . agrees that for a period of two years after termination of his/her employment with TradeStaff . . . the employee will not, within the State of Virginia, or any other state where TradeStaff provides labor, directly or indirectly engage in the business of providing labor personnel, including but not limited to, carpenters, electricians, plumbers, general laborers, masons, etc., to companies performing work in the construction industry . . . Direct or indirectly engaging in the business of “labor provider” or in any competitive business shall include engaging in such business as an owner, partner, or agent, or as an employee of any person, firm, or corporation engaged in such business . . .

In 2006, Nogiec resigned from the company. He returned eight months later and orally agreed to resume employment under the same contractual terms as before.

In 2008, Nogiec again resigned from 1800SKILLED and joined Chipton Ross, a competitor.

After Nogiec began working for Chipton Ross, 1800SKILLED filed a lawsuit, alleging (a) breach of the non-compete contract by Nogiec, (b) tortious interference with contract by Chipton Ross, (c) conspiracy to divert business in violation of the non-compete by Nogiec and Chipton Ross, and (d) breach of fiduciary duties by Nogiec.

Nogiec and Chipton Ross moved to dismiss the lawsuit. They argued that the non-compete was invalid under the Virginia State of Frauds, and even if it were a valid contract, it was overly broad and unenforceable.

The Chesapeake Circuit Court held a hearing on both issues.

Virginia Statute of Frauds Does Not Apply to Non-Compete

Nogiec moved to dismiss the case, arguing that his oral contract was invalid under Virginia law. He signed a written contract containing a non-compete clause when he first started with the company.  He then left and returned to the company.  When he started working for the company a second time, his contract was an “oral promise” to keep working at the company under the same terms as before.

Under the Virginia Statute of Frauds, an oral promise is not enforceable if the parties cannot complete performance under the contract within one year. Va. Code § 11-2(8).

In this case, Nogiec argued that his work as an employee at 1800SKILLED and the non-compete would take at least two years to perform.  If Nogiec quit within one day of working for the company, his non-compete would be in effect for up to two years.

The Chesapeake Circuit Court disagreed with Nogiec’s argument. The Court relied on the Supreme Court of Virginia’s interpretation that the statute of frauds is inapplicable if the agreement does not contemplate non-performance by both parties within the year. See Greenbrier Farms v. Clarke, 193 Va. 891, 895 (1952).  The Court found that both Nogiec and 1800SKILLED must have been obligated to perform some act beyond a year for the Virginia Statute of Frauds to apply.

In the context of at-will employment, the mere obligation to comply with a non-compete is not enough to trigger the Virginia Statute of Frauds. See, e.g., Farm Veterinary Services, Inc. v. Novak, 61 Va. Cir. 584 (Franklin County 2001) (holding that the Virginia Statute of Frauds did not apply to a non-compete that lasted three years because the employee was at-will).

Chesapeake Court Holds Non-Compete Overbroad

Even though the Chesapeake Circuit Court upheld the validity of an oral non-compete contract, the Court nonetheless held that the contract itself was overbroad and unenforceable.

Under Virginia law, a non-compete contract must be reasonably limited in duration, geographic scope, and functional limitation. Blue Ridge Anesthesia & Critical Care, Inc. v. Gildick, 239 Va. 369, 371-72 (1990). When a non-compete contract is susceptible to more than one interpretation, at least one of which is too overbroad, then the non-compete will be held unenforceable. Lanmark Tech, Inc. v. Canales, 454 F. Supp. 2d 524, 529 (E.D. Va. 2006).

Here, the Chesapeake Circuit Court held that the duration of two years was likely reasonable. See, e.g. Roanoke Engineering Sales Co. v. Rosenbaum, 223 Va. 548, 553 (1982) (holding that a period of three years was reasonable where the non-compete was limited to the “territory covered by [employer]”).

The functional restriction against working for a competitor in any capacity, however,was overbroad, and the Court rendered Nogiec’s non-compete unenforceable as a matter of Virginia law. Also, the geographic scope was too broad.

(a) Overbroad Functional Restriction – “In Any Capacity”

Numerous Virginia courts have struck down non-competes when the employee is restricted from working for a competitor in any capacity and doing unrelated work. See, e.g., Modern Envt’s, Inc. v. Stinnett, 263 Va. 491 (2002) (invalidatinga non-compete that prohibited working in any capacity for a competitor); Motion Control Sys., Inc. v. East, 262 Va. 33, 37-38 (2001) (invalidating a non-compete that prohibited working in any capacity for any company that made a motor that was “similar” to the former employer’s specialized, brushless motors); Lanmark Tech, 454 F. Supp. 2d 524, 528 (invalidating a non-compete that prohibited “former employee from any form of employment with a competitor, including work unrelated to the employee’s [former] work”).

Therefore, the 1800SKILLED non-compete, which prohibited Nogiec from working for a competitor in any capacity, was unenforceable.

(b) Overbroad Geographic Restriction – “Anywhere” 1800SKILLED Does Business

The Chesapeake Circuit Court also found non-compete’s geographic restriction as overly broad.

1800SKILLED prohibited Nogiec from working throughout the State of Virginia and anywhere the company might do business in the future.

The Chesapeake court noted that a non-compete will generally be enforceable if it were limited to the area formally serviced by the salesperson, i.e. their sales territory. See, e.g. New River Media Group, Inc. v. Knighton, 245 Va. 367, 368 (1993) (upholding a 60-mile restriction equivalent to former radio broadcaster’s territory); Blue Ridge Anesthesia, 239 Va. at 372 (upholding a non-compete limited to territories serviced by the employee).

Here, the non-compete extends far beyond the few counties where Nogiec worked as a sales manager.

Moreover, the fact that the non-compete could “grow and expand” to wherever the company did business was vague and unenforceable as a matter of law. The Chesapeake Circuit Court compared such an open-ended geographic restriction to an “amoeba” that might have “a life wholly unto itself” and grow more oppressive by the day.

Employees, said the Chesapeake court, should not have to guess the boundaries of their non-compete contracts. The Court held that the geographic restriction was overbroad.

Key Takeaway for Employers and Employees: A non-compete does not have to be in writing for at-will employees, but it is helpful to get a signed agreement. The non-compete terms should be limited to the sales territory serviced by the employee. Otherwise, a court may invalidate the contract.

Download: TradeStaff & Co. v. Nogiec, 77 Va. Cir. 77 (Chesapeake 2008)