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.  There is a good chance that you have a non-compete limiting your mobility if you separate from your employment. Before switching employers, employees should consider whether a non-compete agreement is enforceable and plan for a smooth transition upon exit.

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 and Technical Director of Software, 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 at 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, as has been upheld in other cases.

The functional restriction against soliciting customers to provide 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. Furthermore, it only applied to soliciting customers to provide directly competitive services.

With respect to no geographic limitation, Fairfax Circuit Court has held that the lack of a geographic limitation is not necessarily fatal to the enforceability of a 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 limitation to specific customers with whom the former employees provided services on behalf of their former employer was sufficient, despite the customers being scattered around the country.  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 clause 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 and no geographic scope was acceptable.

The Fairfax Circuit Court, however, held that the phrase “substantially similar or related” rendered the clause unenforceable. The Court found that the phrase was vague because it was prohibited the employees from providing directly competitive services, as well as those “merely related” to the services provided by the employer. 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.

Non-solicitation and non-compete agreements are enforceable even when there is no geographic restriction, so long as the restrictions do not prohibit employees from providing unrelated work on behalf of a competitor or to customers with whom the employees had no contact while employer by their former employers.

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, 80 Va. Cir. 611(Fairfax 2010)