Virginia Non-Compete Law Blog

VIRGINIA BUSINESS ATTORNEY

2009-07-16T08:48:00.004-04:00

I was born and raised by an entrepreneur.

What does that really mean? It means my entire life I have thought about "owning my own business." I don't think I am alone in this crazy dream.

According to Entrepeneur Magazine,
-68% of business students are interested in owning their own business. (Collegiate Entrepreneurs Organization, July 2006)
- 77.8% of students with entrepreneur family members would like to start their own business someday; 64% of students whose family are not self-employed agreed. (JA Worldwide, August 2006)

Ok - so Millions of Americans will start their own business. What does this mean?
It means Millions of Americans are excited, passionate and may unknowingly be setting themselves up for expensive litigation.

I know this sounds cruel, but when you spend 1 day reading about business litigation in Virginia, and what employers allege, you will be just as scared.

Start your own business? Great idea. But not while you have a job with a competing company.

Write a business plan - again, great. Don't do it on company time or using work computers.

Want to tell your friends and start to advertise? Again, a good idea - but not while you are still under contract elsewhere.

All of this will be used to form an action against you called BREACH OF FIDUCIARY DUTY - and maybe BREACH OF CONTRACT.

Like the pricing structure of your current job and want to incorporate it into your new business? That may lead to a TRADE Secret claim.

I don't mean to be alarmist, but sometimes those focused on starting a new business, are not focused on protecting themselves.

Please obtain legal help and advice to try and avoid these pitfalls - BEFORE you put the first word of your new business on paper. Not when you get the lawsuit.

Entrepreneur says that "Roughly 82% of small business owners turn to their accountant for business advice over their lawyer or banker." (SurePayroll, September 2006)

That is certainly bad news. Please seek a professional that can help you avoid business litigation, that will be worth its weight in gold.

DO YOU HAVE A NON-COMPETE?

2009-07-14T11:39:00.004-04:00

Are you a plumber?
Exterminator?
Doctor?
Dentist?
Hair dresser?
Fashion consultant?
Engineer?
Salesman/woman?
Computer programmer?

If you are any of the above, then you probably have a non-compete.

And if you do have a non-compete, we recommend the following:

Please get a copy when you sign it.
Please re-read it before you leave or quit your job.
Please don't start a new business or a new job without asking an attorney to review the non-compete.
Please tell your new job about the non-compete. (In Virginia, they can fire you for lying or withholding that sort of useful information).

DO YOU HAVE A NON-COMPETE?

2009-07-14T11:39:00.001-04:00

IMPORTANT COURT DECISION ON FINANCIAL ADVISORS AND NON-COMPETES

2009-07-09T10:05:00.003-04:00

The U.S. District Court in Norfolk, Virginia just issued an important ruling on the effects of non-compete/non-solicitation agreements on financial advisors who are regulated by the Financial Industry Regulatory Authority or "FINRA." The case is Bank of America Investments Services, Inc. v. Michael Byrd and Gregory Harris.

Byrd and Harris were employed as financial advisors for Bank of America.
Both Byrd and Harris resigned from Bank of America (BOA) to join Wells Fargo Advisors, formerly known as Wachovia Securities, LLC ("Wachovia"). Following his resignation, both employees telephoned former BOA clients and, at a minimum, informed such clients that he had left BOA and joined Wachovia.

BOA filed a request for a preliminary injunction and restraining order citing a non-competition/non-solicitation agreement entered into with the departing employees. Interestingly, the parties agreed they are subject to and bound by the rules of conduct promulgated by FINRA and that the merits of their dispute involving purported post-employment solicitation were subject to mandatory and binding arbitration. However, applicable employment agreements and the FINRA Code of Arbitration Procedure expressly provide that preliminary injunctive relief may be sought in court, pending a final arbitration ruling.

The court's analysis of the issues is a "road map" for employees who find themselves defending these types of claims by their previous employer. In determining whether to issue a preliminary injunction, the Court used the "Blackwelder test" which considers: (1) the likelihood of irreparable harm to
the plaintiff should the court refuse to grant the injunction; (2) the likelihood of harm to the defendant should the court grant the injunction; (3) the likelihood that the plaintiff will succeed on the merits; and (4) the public interest.

The court reviewed and discussed the evidence on these issues and held that BOA was not entitled to the requested preliminary injunction.

My Take: This is a good decision for employees and financial advisors and should be read and studied by anyone finding themselves in this situation.

NON-COMPETES AND PROFESSIONALS

2009-07-08T11:03:00.002-04:00

People call our office and say "I am not worried because I know my non-compete can't be enforced."

Seriously? Where did you hear that? (I want to ask).

Finally, I found the source of this terrible and incorrect rumor. The internet.

I just read an article purporting to give legal advice on non-competes and the author (a self proclaimed motivational speaker) writes "One interesting thing to note: noncompete agreements are not enforceable against certain "professionals," like doctors, CPAs, and lawyers."

I hate to call you out sir, but what you have written is absoluitely not true. I would do some more research before making such an incorrect statement.

To read about how enforceable non-competes are against virginia doctors, please read an article Dan and I finished today, based on his numerous blog posts.

YIKES - now I know where people are getting these ideas and claiming them to be true.

Please don't believe everything you read - call a professional before you bank on internet advice.

DOCTORS AND NON-COMPETES: ANOTHER REPORT

2009-07-06T09:16:00.002-04:00

I just read an interesting article about a doctor in Montana who may be prevented from moving her medical practice from one hospital to a local Veterans Administration Hospital. It appears Dr. Elain Samuel had previously entered into a "recruitment contract" with St. Peter's Hospital which prevented her from "competing" with St. Peter's by moving to another local hospital.

The CEO of St. Peter's Hospital says his hospital should not have to "eat" monies advanced to a new doctor if the doctor should chose to move her/his practice to another hospital. I agree but they way to accomplish that goal is to require the doctor to sign a contract agreeing to reimburse the hospital for reasonable expenditures....but not to require the doctor to sign a non-compete which only hurts the patients.

The legal case is awaiting a decision from Judge Kathy Seeley of Helena, Montana.

NON COMPETE SCAPEGOATS

2009-06-30T16:55:00.002-04:00

You know what a scape goat is?

Sadly, most of our non-compete litigation cases arise when an employer wants to make an example, and someone becomes the non-compete scapegoat.

Employers aggresively pursue breach of contract action against the employee, seeking emergency injunction.

Will they win? Maybe, probably not. But that is not really the point and not really the goal. The goal is to scare everyone else into submission.

Afterall, will you quit your job when your old colleague is buried in litigation costs?

I tell prospective clients all the time "I know the court may hold your non-compete is unenforceable.... but in the meantime, you will have all of these other allegations to defend in Court, discovery to undergo etc. Even if your employer loses, they haven't really lost if they have made an example to all the other employees as to what happens when you breach your non-compete."

Is that fair? No. is it the truth? Yes.

FIDUCIARY DUTY - YES - BUT TO WHOM?

2009-06-18T09:01:00.003-04:00

Virginia Circuit Court Judge in Fairfax recently held that one member of an LLC could not sue the manager of the LLC for breach of fiduciary duty. The Supreme Court of Virginia agreed.

Why was the case dismissed?

Because the member did not have standing to bring suit.

"Standing" is legal speak for - a right. The member, in her individual capacity, did not have the legal right, to claim an employee of the LLC had breached a duty to her. In fact, the manager / employee had no duty to this member individually at all, only to the LLC. So the LLC could have claimed breach of fiduciary duty but a member, not representing the LLC, was not owed a duty and therefore did not have standing to allege breach of the duty.

Confused? I know it is strange.

Often times in business tort suits we attack or defend the case from two angles: (1) legal angle - "Judge they don't have facts to support that claim," and (2) from a factual angle - "Even if they can allege that, they don't have facts to support it or to support damages."

These cases can get very complicated.

I hope as an individual employee, you will never know how complicated!

Remora Investments LLC v. Orr (Lemons, J.); Fairfax Cir.Ct. (Bellows) Robert K. Richardson for appellant; Richard C. Sullivan Jr. For appellee.

REVENGE IS NOT ALWAYS THE ANSWER

2009-06-15T17:45:00.002-04:00

I often get calls from people, upset, frantic about a threatening letter received from an ex-employer.

The letter may say "We understand you are in breach of your non-compete. Cease immediately or we will seek and injunction against you in a Virginia court and ask for damages in the amount of $1,000,000."

"I have to make a living," my clients / callers say. "I can't afford a legal battle." "How can they come after me like this?"

Most often these comments are born when they realize they are being sued for breach of contract.

You remember the old adage - "Don't get mad, get even?" Well, that is BAD advice when we are talking about bashing corporations or employees of your old employer.

I have had folks say "well if they can come after me like this, I will give everyone their trade secret information and say terrible things about them to their clients."

I often scream into the Phone - DON'T DO THAT. REVENGE DOES NOT HELP IN VIRGINIA BUSINESS TORT CASES.

Don't bad mouth them anywhere - especially in writing. Those writings will turn into a Defamation claim, which will make any breach of contract claim much more complicated.

So please, I understand anger, and even getting really mad when your employer threatens to take you to Court in Virginia for breaking your contract. I also understand the desire to get even, but before you do, please call an attorney to find out what you can and cannot do, say, etc.

You will be glad you did.

IMPORTANT RULING FOR FINANCIAL ADVISORS

2009-06-05T09:52:00.002-04:00

A federal court judge in Wisconsin has rejected a request by Smith Barney to order financial advisers who now work for Robert W. Baird & Co.'s Green Bay office to stop soliciting Smith Barney clients. Smith Barney sued Baird last week and asked for a restraining order, claiming the financial advisers who abruptly left the firm's Green Bay office to work for Baird had breached confidentiality and non-solicitation agreements.

U.S. District Judge William C. Griesbach ruled that Smith Barney's non-solicitation agreement with the employees was "overly broad" and invalid under Wisconsin law.

Interestingly, Judge Griesbach ruled that if the new Baird employees took any confidential client information, they must return or destroy it...but that didn't include names, addresses, phone numbers and e-mail addresses.

DO YOU HAVE A VIRGINIA EMPLOYMENT CONTRACT?

2009-06-03T14:39:00.001-04:00

Do you work for a Virginia corporation or business?

Was it started in Virginia?

Does it have offices in Virginia?

Even if you have never stepped foot in the Commonwealth, you may have an employment contract governed by Virginia law. How do you know? They are called "choice of law provisions" and can be found in most professionally written employment contracts.

There may be a paragraph that says
CHOICE OF LAW: This contract and the terms therein are governed by Virginia law. Should litigation arise from the construction, enforcement or breach of this Contract, parties agree the Circuit Court of X County will be proper jurisdiction.."

I often have folks that call us and want us to help, only to find out they have a non Virginia choice of law provision, which means I can't provide any advice (unless its West Va - I am licensed there too).

So before you call an attorney (1) Check to see if you have a choice of law provision. (2) Then check to see if there is a jurisdiction listed or selected. Does the agreement call for Arbitration? We Arbitrate employment claims and will handle matters in most Virginia Circuit Courts, but always good to know what you are looking at before you call.

Now, Why would your contract contain Virginia law if you didn't work in Virginia? It may be the business is incorporated here, has a principal place of business here, or maybe, the attorney who wrote the contract thought Virginia law was more employer friendly. Sometimes, choice of law provisions can be held invalid - so again, if you have any question, call a Virginia employment attorney or someone who specializes in contract issues.

EMPLOYEES SHOULD FIGHT BACK

2009-05-29T06:42:00.000-04:00

We talk with employees all the time who are faced with a claim by their ex-employer that they (the employee) are working in violation of a non-compete agreement, breached a fiduciary duty owed to the employer, wrongfully took trade secrets from the ex-employer, etc., etc.

Many times these allegations are just "puffing" by the ex-employer...an attempt to intimidate the ex-employee. One strategy to combat this abusive tactic is to really look closely to see if the employee can bring his/her own lawsuit against the ex-employer. In Virginia, the employee may have a claim against the former employer for defamation, intentional infliction of emotional distress, or tortious interference with contractual relations (with the new employer) and economic advantage.

A great example of how such abuses by the ex-employer can turn out favorably for the ex-employee is the $11 million dollar verdict awarded to an ex-employee in a federal case in Arizona for just this very type of conduct.

In the case, a division of medical giant McKesson Corp. took Phoenix medical equipment and pharma salesman Carmen Caccavale to court in 2004, claiming he had violated some trade practices. After working for seven years at McKesson, Caccavale had taken a job with Henry Schein, Inc., a medical supply firm. The judge dismissed McKesson’s suit in December. Caccavale had not signed a non-compete contract. “It was sort of a trade secret case,” according to the attorney who represented Caccavale. Caccavale and his new employer then counter-sued McKesson, saying the medical and health care supplies firm abused the legal process in going after its former salesman.

It didn't take the jury long to award Caccavale and his new employer $11 million in damages for McKesson's wrongful conduct.

The Lesson: If you ex-employer is abusing the legal process by filing unsubstantiated and worthless claims...FIGHT BACK!

VIRGINIA, A "RIGHT TO WORK STATE"

2009-05-28T13:24:00.002-04:00

I was watching a great episode of Law & Order last night (I know - cliche) when a political ad came on for the Va. Governor's race. On candidate said his focus as governor would be to strengthen Virginia's "RIGHT TO WORK LAWS" and to get more jobs in the Commonwealth.

That is code for strengthen laws that protect EMPLOYERS and NOT employees.

Under the Virginia Code, Right to work really means you don't have to join a union, but if you want to, you can't be fired for it. The phrase however, is used all the time however, in reference to Virginia employment rights in general.

So what are your Employment rights in VA?

We have already discussed your right to join a union.

Any others? NOT MANY. Virginia law is very pro employer - that is what the candidate was getting at, strengthen the pro employer laws.

Under Federal law, you can't be fired because of your: race, color, religion, national origin, gender, or because you are pregnant or disabled.

You can be fired for basically any other reason.

So what did this commercial mean, that the Candidate wants to strengthen Virginia's "RIGHT TO WORK LAWS." It means nothing. If he had wanted to create a large scope of protected classes for which you cannot be fired (like sexual orientation, expression, etc) he would have said so.

Right to work DOES NOT protect you if you are fired, unless you were fired for joining the union. It does not create any rights or obligations upon termination. It is a legal phrase being misused to communicate that employees have rights in the Commonwealth.

I GOT FIRED....MY NON-COMPETE CANNOT APPLY TO ME!

2009-05-21T13:36:00.003-04:00

We get this comment fairly regularly. Folks are treated unfairly by their employer, fired from their job, and then reminded as they walk out the door that they cannot go work for a competitor due to their non-compete contract.

Sounds unfair doesn't it? It is unfair. Is is also usually true.

In general, being fired, laid off, or furloughed has NOTHING to do with whether your non-compete is enforceable in Virginia. The agreement may be unenforceable because of it duration, geographical scope, or dozens of other reasons...the fact that you were fired has nothing to do with whether the non-compete agreement is valid.

BROKERS NON-COMPETES AND "PROTOCOL"

2009-05-18T08:52:00.004-04:00

If you are a broker, I am confident you have a non-compete. I am also confident you know about the "protocol" signed by leading houses, such as ML, Citigroup etc.

What if you move from a protocol signatory firm to a non-signatory firm? Well, in my experience, the protocol firm will say you CANNOT take the client list and will threaten to sue. The good news is, some courts understand that industry standards mean more than one brokerage house and their veiled threats:

Breakaway Brokers See Protocol Protection
By Annie Gasparro
A DOW JONES NEWSWIRES COLUMN

"NEW YORK -- Brokers who flee wirehouses for an independent model may not have to fret about being legally pursued by their powerful former employers."

WAIT - I already disagree with Annie, the author. You do have to fret about being pursued. You always have to fret that - at least now you may have some peace, that the house won't be successful.

Ok, back to the article:

"Brokerage firms often seek temporary restraining orders to prevent brokers from taking clients with them when they leave. This threat can make some advisers hesitant to go independent, but a recent broker victory in Indiana could establish an industrywide protocol.

In this case, the judge ruled that even though neither company was a member of the Protocol for Broker Recruiting agreement, the standards still apply.

The protocol allows brokers to take client names, contact information and account types, but no account details. It was first signed by Citigroup Inc. (C), UBS AG (UBS) and Merrill Lynch & Co. in August 2004. Since then, more than 100 other brokerage firms and registered investment advisers have joined.

Because all major brokerages are members of the agreement, the court decided it should be the industry standard, said Paul Lieberman, lead counsel and associate director of litigation at Hamburger Law Firm. As long as advisers comply with those guidelines and the terms of their contracts, the brokerage giants should not be able to obtain restraining orders against them.

"I was pleasantly surprised to hear that in court," Lieberman said. "If the judge issues a [written] ruling" it is likely to set a precedent, he said. "We will certainly be using it in other cases like this."

In the case filed in the U.S. District Court for the Southern District of Indiana, a brokerage house alleged that the departing advisers breached client confidentiality, among other things. The Hamburger Law Firm successfully argued that the brokers were in compliance with their contracts and that the clients have a right to stay with the advisers when they move.

For brokers considering going independent but fearing legal action from their former employers, the ruling shed light on the process. Going independent is much riskier legally than jumping from one wirehouse to another, Lieberman said, because the brokers are more responsible for their own compliance and legal advice.

With the protection of the protocol agreement, indie advisers would be untouchable as long as they follow the terms themselves."

AGAIN - ANNIE, I disagree. They can still be sued and forced to defend themselves. This is not exactly "untouchable," but it is some good news.

CAN I ASK TO BE RELEASED FROM MY NON-COMPETE?

2009-05-14T15:37:00.001-04:00

Can I ask to be released from my non-compete? In a word, yes.
Does your employer have to let you out of it? In a word, no way.

Often times we have clients call our office who may know they are stuck with a non-compete, but are hopeful their employer will let them out of the agreement.
Although we have seen employers release their employees, they are almost always motivated by a little cash money.

How much money you may ask? Well, it depends.

Are you a valued employee? How much do you make? How long have you been there? Do you know where you want to work next? How long is the agreement for? Is your boss a litigious fellow (meaning - likes to sue people)?

Every case is different - so I cannot share with you a formula for how much, but I have seen a trend in my own cases, of 10% annual salary as a buy out. So if you made $30,000 - maybe $3,000 for year of non-compete would be fair. If however, you are the mastermind behind a company - I doubt 10% will do the trick.

So what is the positive side to attempting a buy out? It might work and you may leave on good terms. Negative aspects of a buy out? It may not work and you have essentially told your employer you plan on breaching the agreement.

With everything in life - there is a risk. Sometimes however, a buyout will provide the release you need from your non-compete contract.

DOCTORS AND NON-COMPETES: CASE #9

2009-05-13T06:20:00.004-04:00

The last case we will discuss in this series of Virginia court decisions on non-compete contracts and physicians comes from the Virginia Supreme Court. The case, Greenbrier Obstetrics and Gynecology v. Zenette Moore Leao,MD, was decided January 9, 2009.

Dr. Leao entered into a 3 year employment contract with Greenbrier, a professional corporation providing obstetric and gynecological services in southeast Virginia. The contract contained three important provisions:

1. Section 4.01(e) stated the agreement may
be terminated by either employer or employee without cause and without
any further obligations upon 60 days advance written notice.

2. A covenant not to compete which provided
that "for a period of 2 years following termination of employment...employee
shall not, directly or indirectly, own, manage, participate in, be employed
by, or maintain any interest in any medical practice which practices
obstetrical or gynecological medicine within a 20 mile radius of the current
office of the employer."

3. Section 3.05(f) provided, "Employee
and employer intend that this Covenant Not to Compete shall be severable from the other
provisions contained in this agreement, and employer shall not be barred from
enforcing employee's covenant by reason of its breach of any other provision of
this Agreement."

Dr. Leao worked for Greenbrier for 3 years but, due to medical reasons, had to terminate her employment and provided the required 60 days written notice. She then filed suit asking the court to determine the enforceability of the non-compete provision in her contract.

The Virginia Supreme Court ruled in Dr. Leao's favor and found the non-compete unenforceable for the following reasons:

1. Section 4.01(e) provided that, after proper notice of termination, neither party had "further obligations."

2. Section 3.05(f) was a severability clause and an attempt by the employer to protect its ability to enforce the non-compete even if it failed to live up to its obligations under the contract.

3. The Virginia Supreme Court, viewing the agreement as a whole, found these two sections to be an "unresolvable conflict." Accordingly, since Greenbrier drafted the agreement all ambiquities are construed against the drafter, Dr. Leao's notice of termination ended all further obligations of the parties...including the non-compete.

DOCTORS AND NON-COMPETES: CASE #7

2009-05-12T06:21:00.000-04:00

The Roanoke Valley is again the location of the next important physician non-compete case in Virginia. The case, Carilion Healthcare v. William Ball, was decided by the Roanoke County Circuit Court in 2001. Carilion is western Virginia's 800 pound healthcare gorilla and began purchasing local medical practices in order to guarantee a stream of hospital patients.

Carilion and Dr. Ball entered into a Physician Employment Agreement ("PEA") and a Noncompetition Agreement in July of 1996. The PEA set forth the details of the employment relationship while the Noncompetition Agreement addressed the purchase of the assets of Ball's medical practice and the terms of the covenant not to compete. Ball remained employed with Carilion until the PEA expired on September 30, 2000. Carilion made an offer of continued employment to Dr. Ball, the reasonableness of which is not contested. Dr. Ball declined the offer and began practicing medicine independently of Carilion and litigation ensued.

The Noncompetition Agreement provided that Dr. Ball could not compete with Carilion for the provision of primary care medical services within 25 miles of the primary office for a two (2) year period following any termination of employment.

As I have discussed in previous blogs, non-competes are restraints in trade and are closely examined and strictly construed before the restriction can be enforced. Any ambiguity must be construed in favor of the employee. However, as in this case, Virginia courts are more likely to uphold and enforce non-compete contracts when they arise out of the sale of a business…the rationale being that a buyer and seller are on more equal footing that an employer and employee. To my thinking, the fact that Carilion purchased Dr. Ball’s professional practice was the main reason the court upheld the non-compete in this case.

DOCTORS AND NON-COMPETES:#6

2009-05-10T06:39:00.002-04:00

The Circuit Court of Fredericksburg (VA) decided the next important Virginia case involving doctors and non-compete contracts. The case, decided in 1998, was Clara Belle Wheeler v. Fredericksburg Orthopedic Associates and Mid-Atlantic Health Alliance.

Dr. Wheeler (an orthopedic surgeon) and medical practices entered into a written employment agreement for a 12 month period. The agreement required Dr. Wheeler to become “board certified” in the field of orthopedic surgery. The agreement also contained a non-compete provision which prohibited Dr. Wheeler from practicing medicine within a 35 mile radius of the City of Fredericksburg for a period of 18 months if she left her employment.

After 12 months, the employment agreement was never renewed in writing…but both the medical practices and Dr. Wheeler kept working under the same terms and conditions. After failing her second attempt at passing her orthopedic boards, Dr. Wheeler was terminated by the medical practices. She then filed suit against the medical practices requesting the court to find her non-compete unenforceable.

Dr. Wheeler’s sub-specialty was in the field of orthopaedic microsurgery of the hand. There was no other physician in the Fredericksburg, Virginia, area who was engaged in that type of practice. When emergencies occurred which required a physician with Dr. Wheeler's sub-specialty in the Fredericksburg area and she was unavailable, those patients were transported to either Washington, D.C., Richmond, or Charlottesville, Virginia, cities more than fifty miles from Fredericksburg.

There were several significant issues in the case but two of the most important issues/findings by the judge were the following:

1. The medical practices fired Dr. Wheeler. In doing so, the medical practices, by their own actions, were deprived of Dr. Wheeler’s services, expertise, and net profit. The only damages the medical practices could claim would be their loss of profit through direct competition with Dr. Wheeler. Those damages would be difficult to prove since Dr. Wheeler engaged in a specialty of orthopedic surgery that was not practiced by any of the remaining members of the medical practices.

2. The public would suffer a harm if Dr. Wheeler was not allowed to practice her sub-speciality within 35 miles of Fredericksburg as patients would have to travel substantial distances to find a similarly skilled doctor.

The court granted a temporary injunction against the medical practices which prohibited their interference with Dr. Wheeler's efforts to practice medicine in Fredericksburg. Apparently, the case settled (presumably upon favorable terms for Dr. Wheeler) before any final rulings by the court.

My Take: First, if the doctor focuses her/his practice in a specific area of medicine not readily served in the geographical area...the non-compete mail fail due to public policy concerns. Secondly, how can an employer prove damages due to the actions of a fired/terminated physician?

DOCTORS AND NON-COMPETES: CASE#5

2009-05-08T06:03:00.007-04:00

The next important decision by a Virginia court on the legality and enforceability of a physician's non-compete comes from my hometown of Roanoke, VA. The case was called Drs. Blum Newman, Blackstock & Associates, Optometrists v. Timothy Jessee, MD and was decided in 1997.

Dr. Jessee (the defendant), an optometrist resigned his employment of nine years with plaintiff's professional corporation and began practicing at a local Wal-Mart store. Plaintiff filed suit requesting injunctive relief and damages, claiming Dr. Jessee was in violation of his non-competition agreement. The agreement restricted Dr. Jessee from practicing optometry within a 25-mile radius of the plaintiff's nine offices for three years. As written, the non-compete agreement prevented Dr. Jessee from being employed as an optometrist in the Roanoke Valley for a period of three years. Dr. Jessee argued the contract was overbroad, ambiguous, punitive, and unenforceable.

The trial court, applying the "three-prong test" found the agreement to be reasonable and enforceable.

The most interesting part of the case dealt with the issue of "liquidated" damages. Apparently, the non-compete contract provided that Dr. Jessee would be indebted to the plaintiff corporation for a specific sum of money if he violated the non-compete (the opinion never discloses the amount of the liquidated damages set out in the contract). The court noted the general rule that:

When the damages resulting from the breach are susceptible of definite measurement or when the agreed amount would be grossly in excess of actual
damages, courts usually construe such an agreement to be unenforceable penalty.

In this case, were it necessary to fix damages, actual damages could be reasonably ascertained by use of normal accounting practices. For the reasons set forth…the Court finds that the liquidated damages portion of the contract is an unenforceable penalty clause. It is, however, severable.

My Take: Due to the abbreviated length of the judge's decision it is difficult to determine just what evidence was presented to the trial court so it is difficult to gain significant guidance from this decision. However, the fact the judge basically "threw out" the damages stipulated in the non-compete agreement is significant.

NORTH CAROLINA SIDES WITH EMPLOYEE

2009-05-07T15:55:00.018-04:00

The employee worked as an account executive for an insurance broker. He signed a non-compete agreement which provided as follows:

For a period of two years following termination of employment, employee shall not:

(i) On behalf of himself, another insurance company and/or agency, directly or
indirectly, seek to induce, promote, facilitate, solicit, quote rates for, receive, write, bind, broker, transfer or accept replacement or renewal of insurance or otherwise provide insurance and/or insurance services on behalf of any person, firm or entity to whom the brokerage company has sold any product or service, or quoted any product or service, whether or not for compensation, in the one year prior to the time employee ceases to be employed by the brokerage company. Nor will employee induce or seek to induce the discontinuance or lapse of any insurance coverage or service provided or placed by the brokerage company in the one year prior to the time employee ceases to be employed. This restriction applies regardless of whether employee, directly or indirectly contacts the policyholder or prospect, or whether the policyholder or prospect contacts or seeks to contact the employee.

(ii) Employee covenants to refrain from performing or engaging in the activity prohibited ...(1) Charlotte, North Carolina, or (2) in any other city, town, borough, township, village or other place in the State of North Carolina or the State of South Carolina in which city, borough, township, village or other place [Defendant] is engaged in rendering its services or selling its products.

Pretty tuff non-compete...wouldn't you agree? The Court of Appeals in North Carolina found the scope so exhaustive as to be unenforceable. Most of the court's analysis dealt with the observation the non-compete reached not only current and former customers of the brokerage company, but also included any person or entity to whom the brokerage company had merely quoted a product or service.

The Court found the brokerage company's attempt to prevent the employee from obtaining clients where the brokerage company had failed to do so, was an impermissible restraint and rendered the agreement void. The decision is Hejl v. Hood Hargett & Associates.

DOCTORS AND NON-COMPETES: CASE #3

2009-05-04T06:25:00.002-04:00

The next important decision by a Virginia court on the legality and enforceability of a non-compete contract arises from a 1996 decision in Loudon County, VA, Joseph Statkus v. Loudoun Anesthesia Associates, LLC.

In 1994, Dr. Statkus joined with four other physicians to form a company known as Loudoun Anesthesia Associates (LAA). LAA was formed for the purpose of providing specialized and exclusive medical services to the Loudoun Hospital Center (LHC) and to the Loudoun Health Services (LHS). Subsequent to the formation of the company, the physician members (licensed anesthesiologists) executed an Operating Agreement which contained the following non-compete provision:

That for a period of one (1) year following withdrawal from the Company, whether voluntary or involuntary and whether with or without cause, that Member will not directly or indirectly engage in a business similar to that conducted by the Company or in any other business competitive with the Company, but only so far as such competitive business is located in or actively solicits business in Loudoun County, Virginia . . .. The Members hereof expressly agree that the terms, duration, and geographic extent of this Covenant Not to Compete are reasonable.

The court found the non-compete language to be invalid and unenforceable because it represented an unreasonable restraint on the practice of anesthesiology and pain management by Dr. Statkus.

Why? Because the court found that LAA was the sole provider (pursuant to a separate contract) of anesthesia services to LHC and LHS. Also, pursuant to that separate contract, LHC and LHS could only retain the doctors at LAA for anesthesia services. Therefore, the non-compete between LAA and Dr. Statkus was unnecessary...he could not work for LHC or LHS because he was no longer a part of LAA.

Final Comment: Interestingly, the court did not place any significance on the recitation in the covenant that the parties "agreed that the terms, duration, and geographic extent of this Covenant Not to Compete are reasonable." Finding that such a recitation would have no more significance than a statement that the covenant is legally binding because questions of reasonableness or legal efficacy are ones for a court, and not for the parties, to decide.

DOCTORS AND NON-COMPETES: CASE #2

2009-05-02T06:06:00.002-04:00

The next important court decision analyzing the legality of a physician's non-compete contract comes from the Circuit Court of Virginia Beach in the decision, A. J. Alexander v. Kandarp Shah, MD, PC, decided in 1995.

The plaintiff was employed by the defendant medical practice as a gastroenterologist, pursuant to a written employment contract. The parties employment contract provided that upon termination of the contract, the plaintiff agreed not to "engage in the practice of medicine" within a twenty-five mile radius of any of the employer's offices and any of the hospitals at which the employer practiced for a period of 2.5 years. The contract also provided the plaintiff would be free to practice within the prescribed area if he paid the defendant employer "liquidated damages" in the amount of $ 225,000.00.

The court found the contract failed the first prong of the three-part test used to determine the validity of a non-compete contract. That first prong requires the agreement not be broader than is required to protect an employer's legitimate business interest.

The court ruled that prohibiting the plaintiff from engaging in the "practice of medicine" within the proscribed geographical area went far beyond just the practice of his specialization in gastroenterology. Therefore, the prohibition was overly broad and unenforceable. The court also ruled that, since the non-compete language was unenforceable under Virgina law, it would not enforce the liquidated damages provision of the agreement.

My Take: The agreement would probably have been enforced if the agreement had prevented the plaintiff from working as a gastroenterologist within 25 miles for 2.5 years but courts are unwilling to rewrite (or "blue pencil") an agreement executed by the parties.

DOCTORS AND NON-COMPETES: CASE #8

2009-04-30T09:46:00.017-04:00

The City of Norfolk Circuit Court provides the next physician non-compete case of interest. The case, Denton Weiss v. E.V.M.S Academic Physicians and Surgeons Health Services Foundation, was decided in 2005.

Dr. Weiss and EVMS entered into an employment agreement which contained a non-compete provision. Problems arose in the employer-employee relationship and Dr. Weiss asserted that EVMS had failed to meet its obligations under the employment/non-competition agreement. Dr. Weiss, while still employed by EVMS, filed suit against his employer asserting what is called the "First Breach Defense" in his attempt to void the non-compete provision of his contract. This defense basically asserts that if an employer first breaches its obligations and duties to the employee under the employment agreement, then the employer is not permitted to hold the employee to his/her obligations under the agreement. This is also sometimes referred to as the "clean hands defense" to non-compete contracts.

Great strategy by Dr. Weiss and his legal team...only one problem. The employment/non-competition agreement contained the following language:

The existence of any claim or cause of action of the Clinician [Dr. Weiss] against EVMS and the Foundation, whether predicated on this Contract or not, shall not constitute a defense to the enforcement by EVMS and the Foundation of the restrictions, covenants and agreements contained herein.

Basically, EVMS took away the first breach or cleans hands defense by inserting language in the employment/non-compete agreement allowing them to do so. The court found that inserting this "no defense clause" into the contract was not unconscionable or in violation of public policy.

My Take:Make certain you read all of the contract and discuss its meaning and impact with an attorney experienced in these matters.

DOCTORS AND NON-COMPETES: CASE #1

2009-04-30T06:28:00.008-04:00

One of the first reported (and important) cases involving doctors and non-compete contracts arose in Richlands, Virginia, a town in Tazewell County. The case, Clinch Valley Physicians, Inc. v. Luis Garcia, MD, was decided by the Virginia Supreme Court in 1992.

Clinch Valley Physicians, Inc. (CVP) was a professional corporation whose shareholders were physicians. Each physician had a contract with CVP which provided, among other things, as follows:

1. The contract term was for one year but could be automatically renewed.

2. The Board of Directors of CVP could terminate the contract for justifiable cause, which included, but was not limited to any of the following: (a) the withdrawal or suspension of the license to practice medicine and/or surgery in Virginia; (b) the withdrawal or suspension of the license to dispense or prescribe narcotic drugs; (c) being guilty of professional misconduct by any professional organization having jurisdiction; (d) the withholding of any professional or other fees in breach of the terms and provisions of this agreement; and (e) failure to observe the general rules promulgated by the Board of Directors of CVP.

3. Upon termination of the agreement, for any reasons whatsoever, the Physician could not, for a period of 3 years, engage in the practice of medicine or surgery in a radius of 25 miles of Richlands.

Dr. Garcia decided to leave CVP and his contract was not renewed. He then filed suit against CVP asserting the non-compete language did not apply to him since his employment agreement with CVP had lapsed and he was not "terminated."

The Virginia Supreme Court agreed with Dr. Garcia's position and held the non-compete provision was not enforceable against him. The Court reasoned that, in reading the agreement in its entirety, the non-compete provision applied only to physicians who were "terminated" as set forth in the agreement.

The importance of this decision is that it is a great example of how the court looks very closely at the precise language of the agreement and, if it is unclear or ambiguous, such flaws will be held against the employer who drafted the agreement. The Court noted that CVP could have drafted the agreement so that it would have applied in situations where the physician chose not to renew his contract.