For businesses, particularly those involved in highly competitive industries and markets, protecting private business information is an important ongoing task. One of the tools businesses have at their disposal in this regard is restrictive covenant agreements, also known as covenants not to compete.
Covenants not to compete provide employers an avenue for limiting the ability of employees who have gained access to important information, such as client lists, marketing plans, product development strategy, and other sensitive data, to take that information and use it to compete against a former employer.
A short browsing of some of the case law on covenants not to compete in Virginia shows that Virginia courts generally do not favor these agreements since they constitute a restraint on free trade. That said, there is a place for covenants not to compete, provided they don’t overly restrict an employee.
Virginia courts looking at covenants not to compete will utilize the general principles of contract law to interpret them, as well as special rules applying specifically to such agreements. One important rule is that the limitations on competition must not exceed what is reasonably necessary to protect an employer’s legitimate business interests. Covenants not to compete must not be overbroad, unduly harsh or oppressive on an employee’s ability to earn a livelihood. They must be narrowly written to protect employer’s interests.
Covenants not to compete must also not violate public policy, and are interpreted and applied in favor of employees when there are ambiguities. In our next post, we’ll continue looking at the topic of non-compete agreements, and why it is important to work with an experienced business law attorney when establishing company policy regarding these agreements and negotiating terms with employees.