Although a nonsolicitation agreement did not contain any geographic limitations, it still may be valid, a Virginia Beach circuit judge has ruled.
The pact prohibited an advertising consultant from pursuing former clients of his employer, a big ad agency, for two years.
The judge deferred consideration of another important issue in the case: the definition of former clients. The agreement defines “client” as any person or business who received services from the agency for a two-year period before the consultant’s termination.
The case is Leddy v. Communication Consultants Inc. (VLW 000-8-159). Judge A. Bonwill Shockley wrote the opinion.
The plaintiff worked for the ad agency from 1992 until 1999, when he was terminated.
Virginia Beach attorney Kevin E. Martingayle, counsel for the plaintiff, said that the man was the Richmond-based representative for the defendant, a large advertising agency in the Hampton Roads market.
While working for the agency, the plaintiff signed an agreement that contained a nonsolicitation clause, prohibiting him from soliciting any former clients of the agency for two years after leaving employment.
Martingayle filed a declaratory judgment action, seeking to void the agreement. The decision from Shockley was based on plaintiff’s motion for summary judgment, which she denied.
The plaintiff challenged the agreement on four grounds:
- It contained no geographic limits, and therefore was overbroad.
- The ban on any services provided by the defendant was overbroad.
- The language forbidding “indirect” solicitation was ambiguous.
- The terms are overbroad since it includes clients with whom the defendant may have done business but has no present relationship.
Shockley applied a three-part test for nonsolicitation agreements from a 1980 Supreme Court of Virginia case, Foti v. Cook, 220 Va. 800.
That test considers (1) whether the restraint is reasonable in the sense that it no greater than necessary to protect the employer’s legitimate business interest, (2) whether the restraint is not unduly harsh on the employee in his efforts to earn a livelihood and (3) whether the restraint is reasonable from the basis of public policy.
The judge addressed the plaintiff’s first objection, based on geography.
Under the terms of the agreement, “the plaintiff would be able to engage in work as an advertising consultant but is not entitled to solicit clients of his former employer for a two-year period after he leaves.”
She noted that the plaintiff argued that the lack of limits made the restriction world-wide.
However, she wrote, “[T]his court sees a distinction between the significance of a geographic limitation when that limitation requires no business activity within the restricted area versus a time limitation when all non-employer clients would be available for his services.
“If enough potential customers remain available, then this restriction is not overly restrictive on his ability to earn a living,” she wrote.
She found that the failure to include a geographic restriction did not sink the agreement. The plaintiff’s objection, she said, “is not supported by the case law.”
And the proscription against indirect solicitation was not ambiguous, she held.
She said the second and fourth contentions need additional evidence before they can be ruled upon.
Norfolk attorney Burt H. Whitt, counsel for the defendant, said that a nonsolicitation agreement is a lesser restriction upon an employee than a traditional noncompete agreement.
As long as an employee does not pursue clients of his employer, “he can go across the street” to drum up business, he said.
He added that an even stronger restrictions than those in this agreement would have worked and been upheld.
Indeed, he said that there has been a shift in the marketplaceparticularly in technology businesses in Northern Virginiato make noncompetes and nonsolicitation agreements harsher.
Those pacts protect trade secrets and customer relationships.
Martingayle countered that depending on the circumstances, a nonsolicit agreement “can be just as onerous” on the ex-employee as a tight noncompete.
A significant issue in the case, unresolved at this stage, is the definition of client in the agreement.
Whitt said that a “fair amount of forethought” went into defining client and using a two-year cut-off period. Studies indicate that that that timeframe is the best indicator, he said.
Martingayle said he argued this scenario to indicate how broad the agreement really was: What if the defendant had done work for Advance Auto in Tidewater, which then stopped doing business in the area. The plaintiff moved to Alaska. Advance Auto in Alaska asked him for some help on a public-interest campaign, not even related to its business. Arguably, then, he would be violating the agreement, Martingayle said.
Another grounds of attack, he added, is that the agreement seems to protect services that were merely “available” from the defendant, even though it never provided them. That distinction is overbroad as well, he said he will argue at the appropriate time.