Over the past few years, the Virginia Supreme Court has evaluated the language contained in restrictive covenants, and clarified the types of non-compete clauses which create permissible restraints on trade under Virginia law. Over the past few months, the Court has set out to clarify at which stage in the proceeding a trial court may determine the enforceability or unenforceability of such non-compete provisions. For example, in the September 2013 decision of Assurance Data Inc. v. Malyevac, Virginia’s highest court overturned a trial court for dismissing a non-competition lawsuit at the very start of a litigation based on the trial court’s finding that the non-competition agreement was unenforceable on its face.
Yet, a few months earlier, in April 2013, the Circuit Court of the City of Norfolk determined at an early stage in the litigation that a non-compete agreement which sought to prevent accountants from “directly or indirectly engag[ing] in any business competitive with [the Company]” in “all of the State of Virginia” was overly broad. This case is K & K of VA, LLC v. Brinkley. Is the trial court’s decision in Brinkley (which declared a non-compete overly broad) inherently inconsistent with the Supreme Court’s decision Malyevac (which overturned a trial court for declaring a non-compete overly broad)? The answer is likely no. Litigants can reconcile these two decisions by considering the nature of relief sought in each.
In Malyevac, the employee who had allegedly violated the non-compete agreement filed a demurrer at the trial level seeking to dismiss the entire lawsuit, as a matter of law, based on the agreement’s unenforceable language. However, in Brinkley, it was the employer that filed a motion to obtain a preliminary injunction against its former employees, seeking to temporarily prohibit the employees from engaging in competitive activities until the final trial date
When a company seeks entry of a preliminary injunction to temporarily prevent competition, the company must prove, among other things, that the company is likely to succeed against its former employees at the final trial of the matter. A non-compete agreement is enforceable only if it is narrowly drawn to protect the employer’s legitimate business interest. The non-compete at issue in Brinkley sought to prohibit the company’s former accountants from working in any capacity with any business that is competitive with the plaintiff’s business, anywhere in Virginia. This would essentially prohibit the former employees from even acting as passive shareholders in another accounting business. Thus, the court in Brinkley held that the employer failed to prove that it had a legitimate business interest in enforcing the non-competition agreement, and in turn, failed to demonstrate that was likely to succeed at trial. The court denied the company’s motion for a preliminary injunction. Despite the court’s decision in Brinkley, the company still has the ability to litigate the case through to trial, and the case remains active.