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Noncompete was overbroad, gets struck

A new case from Hanover County demonstrates once again what happens when companies write noncompete agreements that overreach. They get tossed out the door.

In Specialty Marketing Inc. v. Lawrence (VLW 010-8-061), the employee signed a noncompete as part of a stock ownership deal. The company is a wholesaler of consumer home and auto electronics. Lawrence started working there in 1995; by 2000 he was the account rep for Virginia and North Carolina. In 2006 he became a director of Specialty, getting to buy stock.

That purchase carried a noncompete that said Lawrence couldn’t own, manage, or be employed by “any business competitive with Specialty in areas where Specialty has a market for its business.”

Those of you who handle noncompete cases already know where this one’s going.

Lawrence stopped being an owner in December 2008 and two months later he no longer worked there. Some nine months later, in October, a company called Goldberg hired him to be its account rep in, yes, Virginia and North Carolina.

Specialty brought suit for breach of contract in Hanover, but Judge J. Overton Harris took a dim view of the noncompete. He surveyed numerous cases in the field, noting that the test for upholding a noncompete usually turns on limitations on employee function, geographic scope and duration.

The provision that Lawrence couldn’t be employed by “any business competitive with Specialty” is “precisely the type deemed overly broad and unforceable” by the Supreme Court, he said. Why? It is “unlimited in functional scope.”

And while duration wasn’t an issue here, geography was. The prohibition was on working “in areas where Specialty has a market for its business.” Overton noted that Lawrence could move to Arizona, and if Specialty expanded its operation to include the Grand Canyon State, he would be in breach of the agreement.

Overton struck the noncompete and dismissed the lawsuit. But before doing so, he recalled a vivid analogy from a 2000 case from Henrico County: A noncompete, he said, “is like an amoeba. By having a life wholly unto itself, this covenant may grow more oppressive without restriction day by day, week by week, month by month, year by year.”

- Paul Fletcher

2 comments

  1. Having handled many of these cases, it’s surprising to see the same drafting errors year after year. The amoeba quote from 2000 remains one of my favorite noncompete analogies, and summarizes well one of the typical problems with the “functional limitation” aspect. Bottom line: these restrictions are rarely truly necessary, but when they are, they need to be clean, clear and tight, or they’ll fail.

  2. Paul: Good post and Judge Harris got it right! Sounds like the non-compete language at issue could not pass the “janitor test.” Dan

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