A company hires a software engineer, or a stock broker, or perhaps a bio-chemist. This company, knowing the newly hired employee could in the future use his or her knowledge against them, requires the employee to sign a contract agreeing not to look for a job at a rival company for a set period of time. This type of agreement is known as a non-compete clause. These are clauses in contracts which prevent a company’s rival from “poaching” their employees. Employers argue that these agreements are necessary in the world of high-tech and highly skilled jobs, where intellectual property and know-how means everything. Interestingly, there has been an increasing trend of inserting these agreements into the contracts of jobs that have traditionally not included them, many times unbeknownst to the future employee.
Take Colette Buser of Boston, Massachusetts, a 19-year-old college student searching for a summer job. As reported by the New York Times, Colette had worked the previous three summers as a camp counselor in the nearby town of Wellesley. The camp where she worked for all three summers is owned and operated by the Linx Company. According to Linx’s website, they have “over 30 premier camps” in the Wellesley area; one could say they have captured the summer camp market in Wellesley. When Colette applied to work at a different camp this summer, she was surprised when the camp turned her down. Not known to Ms. Buser, her previous contract with Linx included a non-compete clause forbidding her from seeking employment from a non Linx owned camp within a 10 mile radius, for an entire year. The year-long ban may seem somewhat harsh, but the 10 mile radius stipulation is rather draconian for a young college student with limited means. As it was with Colette and her family, this probably seems rather bizarre to most people. How could a rival summer camp threaten Linx by hiring one of their former employees? Colette’s story is not unique, non-compete clauses are now increasingly being used in all manners of jobs that have traditionally not included any, and like camp counselors, many of these jobs do not require much technical skill (if any). This begs the question: do companies own the products of their employee’s labors, or do they in fact own the actual talent of their employees?
The owner of Linx, John Kahn, defends the non-compete clauses in his company’s contracts, “Our intellectual property is the training and fostering of our counselors, which makes for our unique environment,” he said. “It’s much like a tech firm with designers who developed chips.” Mr. Kahn’s statements are not only a bit far-fetched, but many believe the reasoning behind supporting non-compete clauses for all manners of jobs may be flawed, as well. According to Massachusetts State Representative Lori Ehrlich, these clauses possibly contribute to a moribund economy and halt innovation. Both Massachusetts and California have a large tech industry sector of their economies. For many years now, the tech industry in Silicon Valley, California has continued to grow at an astronomical rate, while in Massachusetts it has grown at a much slower pace and has stagnated at times. Certainly there are many factors contributing to this discrepancy, but it is impossible to ignore that California bans non-compete clauses (except in very special situations), while Massachusetts does not. California does however have a much higher unemployment rate than Massachusetts, so this may be an aberration.
Virginia courts strongly disfavor restraints on trade. Virginia Law further require that “non-competition clauses be strictly construed against the employer” (Roto Die Co. v. Lesser, 899 F. Supp. 1515, 1519 (W.D. Va. 1995) (citing Grant v. Carotek, Inc., 737 F. 2d 410,411 (4th Cir. 1984)(emphasis added)) and that ambiguities in the contract [be] construed in favor of the employee” (Omniplex World Servs. V. U.S. Investigations Servs., 270 Va. 246,249 (Va. 2005) (citing Simmons v. Miller, 261 Va. 561, 580-81 (Va. 2001)). The Supreme Court of Virginia holds restrictive covenants unenforceable when the prohibited competition is “too indirect and tenuous” (Preferred Systems Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382, 393 (Va. 2012).
When determining whether a restrictive covenant is valid, the Virginia Supreme Court considers the function, geographic scope, and duration of the restriction as a whole (Home Paramount Pest Control Companies, Inc. v. Justin Shaffer, et al., 282 Va. 412, 415 (Va. 2011) (citing Simmons v. Miller, 261 Va. 561, 581, (Va. 2001)). Thus, a non-compete provision is not enforceable unless it is “narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy (Omniplex, 270 Va. at 249). Conversely, the Supreme Court of Virginia has upheld contracts not to compete only if they are sufficiently “narrowly drawn” to prevent only direct competition with the employer by the former employee. For example, in Preferred Systems Solutions, Inc. v. GP Consulting, LLC, the court enforced a non-compete clause that proscribed work on one specific project, for only two specific companies, and was limited to only 12 months (284 Va. 382,393 (Va. 2012)).