Noncompete went too far to limit employees

Saying businesses have no right to put an “impermeable barrier” around employees and contractors, a Fairfax circuit judge has rejected an action to enforce broadly written noncompete and nonsolicitation clauses.

The ruling could open opportunities for medical professionals and others subject to restrictions on competitive practices.

The decision also helps define the boundaries for lawyers writing non-compete language in employment and business contracts, according to a lawyer for a psychologist sued for taking on work with a new company.

The Jan. 8 opinion by Fairfax County Circuit Judge John M. Tran is The Metis Group Inc. v. Allison (VLW 020-8-003). Tran sustained a plea in bar and dismissed the action to enforce the work restrictions.

Army contract

The federal government granted a Blanket Purchase Agreement, or BPA, to The Metis Group to provide psychological and related services for the U.S. Army, Tran explained. Under the BPA, different provider companies competed for “task orders” from the Army.

Metis hired psychologists Stephanie P. Allison and David A. Kohls as independent contractors to actually provide the services. Their contracts contained restrictive covenants, one of which was essentially a noncompete clause and the other a bar to solicitation of employees and independent contractors of Metis, Tran said.

Allison and Kohls began work under the Metis contract in November 2017. The applicable task orders ran for only one year and were not renewed.

Although the psychologists were idled in their work with Metis, they did not terminate their agreements. Thus, the noncompete clause remained in effect through the “term of the Agreement,” according to Tran’s description of the contract.

“That short period nearly saves the covenant except for the indefinite term that exists without termination,” Tran said.

The nonsolicitation provision stated that it remained in force for 24 months following termination.

In June of 2019, Metis learned that Allison and Kohls were working for the Army under the same BPA but for a competitor, also a defendant in the lawsuit. Metis sent cease-and-desist letters and then sued. All three defendants – Allison, Kohls and competitor Preting LLC – jointly filed the plea in bar, contending the restrictive covenants were unenforceable.

‘Hoarding services’

Tran agreed with the defendants. He distinguished the touchstone 2012 Virginia Supreme Court opinion in Preferred Systems Solutions Inc. v. GP Consulting LLC. In that decision, a 12-month restriction was deemed reasonable since it was limited to the support of a particular program under a particular agency and limited to the same or similar type of IT support offered by the employer, Tran said.

The restriction in the Metis contract applied to the Army for whatever programs needed support, regardless of the program involved or the place of performance, Tran said.

“Consequently, if the Army sought the services of Drs. Allison and Kohl[s] to start up a completely new project overseas with a different unit, they would be prohibited from providing those services without Metis even if The Metis Group had never performed work in that specific area or specific space,” Tran wrote.

The restrictive covenants “seek to hoard the services of the defendants and prevent any disruption of the workplace regardless of whether the disruption comes from a competitor,” Trans said. “The fact that the disruption came from a competitor does not render the restriction enforceable.”

As Tran summarized, “as long as the doctors were acting within their profession with the entire U.S. Army, they were tied to The Metis Group.”

The restrictive covenants also violated public policy, Tran concluded.

“A contract that prohibits a party from seeking employment at the time the employer had no work for the contractor and did not [offer] to subsidize the contractor’s livelihood is almost unconscionable,” Tran wrote.

Suggestions for rewrite

Tran declined to impose a judge-crafted agreement, even though the Metis contract invited judicial editing.

“While Virginia courts will strike down efforts at establishing monopolies and overly broad restraint of trade, the courts are not in the business of writing contracts,” the judge wrote.

But Tran offered examples of how he would rewrite the restrictions. “Client” would not be defined as the entire U.S. Army, but limited to the military unit at Fort Belvoir. He would have sharply defined the specific psychological services involved. He would have the restriction expire at the end of the task order without the need for further notice. The nonsolicitation clause would apply only to those working under the same task order.

“Businesses do not have the right to place an impermeable protective barrier around their employees and their independent contractors,” Tran said.

Burdens allocated

Analyzing the Metis contract, Tran described a burden that shifts depending on the applicable test.

Despite the burden on the employer to prove a lawful restraint, the challenger does not wholly escape the underlying burden of proof of a plea in bar, the judge said. Harmonizing the competing burdens calls for consideration of which party is in the better position to produce evidence.

Whether a restraint is no greater than necessary to protect the employer’s legitimate business interest requires evidence that rests primarily with the employer, Tran said. But whether the restraint is unduly oppressive for the employee’s efforts to earn a livelihood implicates facts known to the employee. Whether a restrictive covenant violates public policy is a matter that should be proven by both parties, the judge said.

Drawing boundaries

Charles M. Elmer of Reston, who represents Kohls, said Tran’s opinion expands on the judicial view that harsh noncompete restrictions have a depressive effect on wages, employee opportunity and the economy generally.

While Tran did not expressly voice those societal worries, “he is articulating the same concerns,” Elmer said.

The Metis Group sought to tie the hands of its former contractors even though it had lost the opportunity to put them in service.

“They didn’t have the work. They just didn’t want them to work for the competitor,” Elmer said.

The Metis opinion marks the flip side to the Preferential Systems decision, Elmer said. While lawyers use Preferential as a guide for what’s allowed in non-compete agreements, Metis sets the barrier where restrictions go too far, he said.

“It draws a nice contrast between what works and what doesn’t. It completes the picture,” Elmer said.

Metis is represented by Timothy B. Hyland and Elizabeth A. Dwyer of Reston. They declined to comment.