Wrong label voids use of noncompete

Labeling an employee as an independent contractor – thereby avoiding taxes and other employer obligations – will void a noncompete agreement in the worker’s contract, a Fairfax circuit judge has ruled.

Fairfax Circuit Judge John M. Tran said an educator’s noncompete agreement was void even if the employer unintentionally misclassified the worker, since misclassification is a violation of state public policy.

The case is The Reading and Language Learning Center v. Sturgill (VLW 016-8-098).

Speech-language pathologist

A recent master’s graduate in speech-language pathology, Charlotte Sturgill had to complete a supervised clinical fellowship to become licensed and certified in Washington. She signed up to work for RLLC, a Virginia company that provided speech therapy.

Sturgill signed an agreement classifying her as an “independent contractor” and barring work for any current RLLC client for two years after the contract ended.

During the 2014-15 school year, RLLC assigned Sturgill to work at a school called Ingenuity Prep through a contract with a special education services provider. At the end of the school year, Ingenuity Prep did not renew its contract for outside services and instead hired Sturgill as an “in-house” speech-language pathologist.

Sturgill’s supervisors reminded her of the noncompete agreement, but Sturgill insisted she could take the school job and leave her job at RLLC, according the judge’s summary of facts.

Misclassification defense

RLLC sued seeking damages “well in excess of Sturgill’s salary” including punitive damages and attorneys’ fees.

A second amended complaint alleged both breach of the noncompete clause and tortious interference with RLLC’s contractual relationship and business expectancies.

Sturgill filed a plea in bar claiming that the noncompete was both unenforceable, because it was overly broad, and void, because it misclassified Sturgill in violation of Virginia public policy.

Tran agreed with both defenses.

Accepting what one attorney observer called a “novel argument,” Tran said even an unintentional misclassification of a worker as an independent contractor deprives a worker of statutory rights and permits employers to avoid taxes.

Whether willful or not, that deprivation is against public policy and voided the agreement between Sturgill and RLLC, the judge said.

Tran reviewed wrongful termination cases based on state public policy, but noted Virginia courts have yet to decide whether misclassification is a public policy violation. Virginia lacks a statute that directly penalizes misclassification of workers.

Several statutes protect employees but not independent contractors, Tran said. Thus, he reasoned, the General Assembly “clearly did not intend for a misclassification to serve as a shield for employers to avoid these statutory obligations.”

Tran concluded the tax laws, employee protection laws and efforts to prevent misclassification all signaled Virginia’s “clear and certain” public policy against misclassification.

Misclassification is a violation of that policy whether willful or not, Tran said. “Ultimately, a misclassification, whether intentional or not, divests a worker of rights bestowed upon them by our General Assembly and permits employers to avoid their tax obligations,” he wrote.

Sturgill was employee

Tran said Sturgill’s work relationship with RLLC undermined the company’s claim to independent contractor status.

As a clinical fellow, Sturgill required substantial supervision as compared to a licensed professional. The work agreement itself established detailed requirements of the job and provided for supervision, Tran said.

Although RLLC argued Sturgill could set her own schedule, RLLC dictated which school sites to visit and how many students to see in a given week. The company had final approval over Sturgill’s schedule.

“The fact that Sturgill could propose her own schedule and session plans does not abrogate the reality that her supervisors had the power to alter them,” Tran wrote.

The judge also said that RLLC paid Sturgill a salary, not a fee per client session. The company provided Sturgill with education and evaluation materials.

Overly broad covenant

Tran faulted the scope of the noncompete’s restriction. It barred all work for a company client, without limitation to any job categories. Sturgill “cannot sell them furniture, provide them cleaning services, or plan any school functions,” Tran said.

Tran refused to consider implied limits based on the expectations of the parties. “Virginia courts do not engage in the practice of ‘blue penciling’ restrictive covenants,” he said.

RLLC said other former workers had honored the same non-compete, but Tran was unmoved. An employer “cannot sustain an iiiin terroremiii effect on its workers simply because it had succeeded to do so in the past,” Tran wrote.

Demurrer rulings

Tran sustained Sturgill’s demurrer to the claim for tortious interference. He found a valid business expectancy between RLLC and the school where Sturgill worked, but he ruled that Sturgill’s decision to leave RLLC and work for the school did not involve “improper methods or means.”

A breach of a non-compete clause failed to meet the test, Tran said.

The judge also rejected Sturgill’s bid for attorney fees based on discovery disputes.

RLLC was represented by Monique A. Miles of Alexandria. She said the small company had decided not to appeal, based on the expected cost.

“My clients do not want to throw good money after bad,” she said.

Nevertheless, Miles said Tran overlooked evidence at the plea in bar hearing suggesting that Sturgill set her own schedule, used her own equipment, and declined company training opportunities. Sturgill was even free to work for other companies while working with RLLC, Miles said.

Sturgill was represented by Julia K. Whitelock of Washington, who was unavailable for comment.