Over-broad geographic limits sink noncompete

A business that specializes in vehicle interior repair has stalled in its attempt to halt competition by two ex-employees who went to work for a competing business operated by the son of the plaintiff business’s founder.

A Fairfax Circuit judge denied a preliminary injunction in the plaintiff’s suit to enforce noncompete and nonsolicitation agreements signed by the ex-employees. In a March 6 letter opinion, Circuit Judge Bruce D. White said the agreements likely were not enforceable. The time limits in the agreements probably would hold up, he said, but their geographic limits were too broad and not tailored to protect a legitimate business interest.

Headquartered in Haymarket, plaintiff Wings LLC provides commercial and residential vinyl, fabric and leather repair services. John Kia started the business in 1996 and remains the sole owner. The vast majority of Wings’ customers are auto dealerships and collision centers that hire Wings to repair headrests, armrests, dashboards and other interior features.

Wings hires technicians, trains them over an eight-week period in its special processes and techniques, and then assigns the technicians to territories in which they regularly contact dealerships and garages to provide repair services.

Wings first hired defendants Jeffrey Manalansan  and Cameron Fridey as independent contractors, then brought both onboard as full-time employees in early 2013.

Wings entered into identical agreements with the defendants that said the employees could not, within 24 months of leaving Wings, directly solicit any customer who had received Wings’ services within the past 12 months prior to the employees’ departure.

The agreements also barred the defendants’ employment “in a position that is the same, or substantially the same,” as their jobs with Wings, with any business that had, within the past 12 months, provided “material, labor or services” that would compete with Wings.

The noncompete agreement stated it was not intended to prevent an ex-employee from working for a competitor “in some role that does not actually compete with Employer’s business,” and said it would apply to any U.S. state or foreign country in which the employer had conducted business during the 12 months prior to the employee’s departure.

In the past 18 months, Wings had served customers primarily in Northern Virginia, southern Maryland and West Virginia, according to the court’s opinion in Wings LLC v. Capitol Leather (VLW 014-8-027).

In its lawsuit, Wings alleged Manalansan and Fridey had received extensive training and learned confidential methods and techniques used by Wings. They also learned Wings’ marketing and business development methods as well as its pricing and financial information, and had access to confidential customer lists, the plaintiff alleged.

In November 2013, Manalansan told John Kia that he was quitting, effective immediately. Kia later learned Manalansan had gone to work for Capitol Leather LLC, a company formed by Kia’s son Jonathan Kia in August 2013. In December, Fridey told John Kia he was quitting, and he told Benjamin Kia, John Kia’s son who worked for Wings, that Fridey was thinking of working for Capitol.

John Kia said he later observed Fridey working at dealerships that had been Wings’ customers.

Asserting a “considerable drop in revenue,” Wings sought a preliminary injunction against Capitol and the Wings former employees.

The court went through the four-factor test for injunctive relief used in federal courts: likelihood of success on the merits, irreparable harm, balance of equities in the case and the public interest.

According to the court, the agreements likely were not enforceable because the geographic restriction was “overly broad and not narrowly drawn to protect the employer’s legitimate business interest.”

White said that, as drawn, the agreement would prevent the former employees from being technicians in, for example, Abingdon, Va., which is approximately 300 miles away from where Wings conducts business. The defendant technicians were trained in leather repair and they live in the greater Washington, D.C. area. Requiring them to locate work that is not in Virginia, Maryland or West Virginia certainly “puts a significant burden on them in their efforts to earn a living,” White said.

The time limits were not necessarily unreasonable, but were unreasonable when considered with the geographic limits, the court said.

Here, the employees “would be prohibited from working as technicians for two years throughout the entire states of Virginia, Maryland and West Virginia and possibly in Washington D.C. As with the geographic restriction, Plaintiff put forward no evidence as to why a restriction that lasts for two years was narrowly tailored to meet a legitimate business interest,” White wrote.

The judge recognized that Wings would likely continue to lose customers and business without an injunction, but said the damage was not irreparable, as monetary damages were an available remedy.

Case law in Virginia is very clear that noncompetes are restraints on trade that are disfavored by the courts, according to Arlington lawyer Kellie Budd, who represents the defendants in Wings.

Although many businesses may not have updated their noncompete agreements since the Virginia Supreme Court’s 2011 decision in Home Paramount Pest Control Cos. v. Shaffer, it’s not just older agreements that are being struck.

“Even when you’re trying to draft an agreement very carefully, you have to know you’re going to have an uphill battle,” Budd said.

She said the defendants’ demurrer in the case is pending before the court.

Fairfax lawyer John Patrick Sherry, who represented Wings, could not be reached for comment.