Fairfax Court Considers Non-Compete Case Against Web Developers

If you work in Northern Virginia as a web developer, software engineer, or other professional with a technology company, your work is in high demand.

However, there’s a good chance that you have a non-compete that limits your mobility. That’s why it’s important before you make the switch to a new employer to consider whether a court will enforce your non-compete. A non-compete lawyer can help plan your exit and ensure a smooth transition.

Consider a recent case in Fairfax involving two web developers.

In 2008, the Datson Corporation hired Randall Spruill and David Stout to work on its Software as a Service (SaaS) team.

The duo worked for the company as Managing Director of Software as a Service and Technical Director of Software as a Service, respectively, and their work included sales and development of customized Google App installations for area businesses. The company was based in Fairfax, Virginia, with clients throughout the country.

On February 1, 2010, Mr. Spruill and Mr. Stout left Datson Corporation. They later joined MiCore Solutions, an area competitor that also provides consulting and information technology services based on Google Apps software.

Datson Corporation sued MiCore Solutions, Mr. Spruill, and Mr. Stout, in Fairfax Circuit Court, seeking to enforce the non-solicitation of customers and non-competition clauses in their employment agreements. The defendants filed a Plea in Bar, i.e. a motion to dismiss, and asked the Fairfax Circuit Court to find the non-compete and non-solicitation provisions overbroad and unenforceable as a matter of Virginia law.

Non-Soliciation of Customers Upheld

The Court’s decision began with a review of the contract. When a Virginia court evaluates the enforceability of a non-compete provision, it starts by looking to the plain language of the contract.

The non-solicitation of customers clause stated:

During the Employment Period, and for a period of two years following the termination of Employee’s employment…Employee covenants and agrees that Employee will not, directly or indirectly, solicit, invite, or by any way, manner or means, attempt to induce any of Datson’s Customers to do business with a Competitor. 

The term “Customer” was defined as any government agency or commercial entity, or component thereof, or any individual that received technology, financial management, or business consulting services by Datson or the employee during their employment.

As an initial matter, the Fairfax Circuit Court held the above non-solicitation provision enforceable. Under Virginia law, a non-solicitation provision must be reasonably limited in duration, geographic scope, and functional restriction. The duration of two years was reasonable, and it has been upheld in other case.

The functional restriction against soliciting the customers for competitive services was also reasonable. The court held that the company had a legitimate business interest in precluding a former employee who had frequent direct customer contact from contacting the employer’s customers for a limited period of time. Furthermore, it only applied to soliciting services from the customers that were directly competitive.

But what about the lack of a geographic restriction? In the context of a non-solicitation provision, the Fairfax Circuit Court held that the lack of a geographic limitation was not in itself fatal to the non-solicitation provision. See Mantech Int’l Corp. v. Analex Corp., 75 Va. Cir. 354, 357 (2008) (upholding a non-competition clause that lacked a geographic limitation). The clause applied to customers, who were scattered around the country, and therefore it was sufficiently limited so as to be enforceable.  Therefore, the non-solicitation provision was enforceable, and the claim could proceed against the ex-employees for soliciting the company’s clients.

Non-Compete Provision Held Unenforceable

Even though the non-solicitation was enforceable, the Fairfax Circuit Court found the broader, blanket prohibition against any competition to be unenforceable.

The non-compete read:

Employee hereby agrees that during the Employment Period, and for one year following the termination of the Employment Period, however occurring, Employee will not directly or indirectly, expressly or tacitly, for himself or on behalf of any Competitor, provide Services to any Client to which Employee, or any individual working under the supervision of the Employee, provided substantially similarly or related Services during Employee’s employment with Datson.

Under Virginia law, the same test applies for a non-compete provision as for a non-solicitation provision: it must be reasonably limited in duration, geographic scope, and functional restriction. Here, the duration of one year was reasonable. The lack of a geographic scope was also apparently not an issue for the reasons set forth above.

However, the Fairfax Circuit Court held that the phrase “substantially similar or related” rendered the clause unenforceable. First, the phrase is vague. Did it apply to custom Google App installations? Or any services related to Google App, such as another email service? When a contractual term in a non-compete is vague, a court will give the employee the benefit of the doubt, and construe the term against the drafter, i.e. the employee. Second, the phrase was so broad as to prohibit performing services that did not directly compete with the company. Accordingly, the Fairfax Circuit Court found the non-compete to be overbroad and not enforceable.

Key Takeaways for Virginia Employees

If you have a portable book of business, and you are thinking about leaving your job to join a competitor, be sure to review your non-compete with a Virginia lawyer before making the switch.

At least in Fairfax, it appears that a non-solicitation and non-compete agreement will be enforced in some circumstances even if there is not a geographic restriction. Furthermore, courts are more inclined to enforce prohibitions on joining a competitor and soliciting former customers. However, courts are less inclined, to uphold a non-compete that prohibits unrelated work at a competitor. Every case is different and turns on the exact words in the contract.

For more information about non-compete contracts in Fairfax, or elsewhere in Virginia, contact a non-compete lawyer for a review.

Download: Datson Corp. v. MiCore Solutions (Fairfax 2010)