What to Include in a Noncompete Agreement

The employee search and hiring process can be difficult for all parties involved. That is why employers, when they hire top-tier talent, want to encourage that talent to stick around for the long haul. One of the most common (albeit controversial) ways to do that is to require new hires to sign noncompete agreements. But every noncompete agreement is different, and such agreements must be tailored to fit the employer’s needs. Furthermore, noncompete agreements have always been subject to close scrutiny by courts and are currently receiving increased scrutiny by lawmakers and regulators, so it is important to ensure that any noncompete agreement a company implements will pass legal muster. Our Norfolk noncompete lawyers can help employers draft noncompete agreements aimed at effectively achieving their goals. 

What Are Noncompete Agreements? 

Virginia is an at-will employment state. Generally, this means that employees are free to move from employer to employer at their discretion and employers are free to terminate employees for any reason or no reason (other than unlawful reasons such as discrimination or retaliation). Noncompete agreements alter that arrangement by prohibiting former employees from working for one of the former employers’ competitors for a certain period of time after their employment ends. Most courts consider noncompete agreements to be restraints of trade and are therefore disfavored in law and policy. 

Enforceability of Noncompete Agreements in Virginia 

While courts and policymakers tend to view noncompete agreements with suspicion, they nonetheless are enforceable in Virginia in most cases. However, when a question arises as to the enforceability of a noncompete agreement, courts construe them strictly and tend to resolve ambiguities in favor of employees. Noncompete agreements are enforceable in Virginia only when: 

1. The restraint is narrowly drawn to protect the employer’s legitimate business interest
2. The restraint is not unduly burdensome or oppressive in curtailing the employee’s ability to earn a living
3. The restraint is reasonable in light of sound public policy 

Whether a particular noncompete agreement protects a legitimate business interest, is not unduly harsh, or is reasonable in scope is not a black-and-white question; in some cases, employers may need a Norfolk noncompete lawyer to prove the above elements. 

Even where a noncompete agreement applies with the above requirements, it may still be unenforceable. Under § 40.1-28.7:8 of the Virginia Code, noncompete agreements are prohibited for low-wage employees. A “low-wage employee” is an employee whose average weekly earnings for the 52 weeks prior to termination are less than the average weekly wage in Virginia as a whole. As of this writing, that includes all workers who earn less than $1,410 per week. 

Key Terms in Noncompete Agreements 

As readers will have noticed, the requirements for an enforceable noncompete agreement in Virginia are vague. Courts do not spell out which provisions are allowed and which are prohibited. Instead, they evaluate the totality of the circumstances with the above requirements in mind. To minimize the risk of a noncompete agreement being found unenforceable, employers should include the below terms in their noncompete agreements. Please note that this is not an exhaustive lists; employers should speak to a Norfolk non compete lawyer to draft a noncompete agreement that takes your employment practices into account. 

Time and Geographic Scope 

Noncompete agreements should be restricted in time and geographic scope. Restraints that prohibit a former employee from ever working in a particular industry again in the entire country are unreasonable on their face. The scope of the time and geographic restrictions will vary from employer to employer and industry to industry. Virginia courts typically find one-year noncompete agreements to be reasonable, although agreements of up to three years have also been found reasonable. There is also some wiggle room when it comes to geographic scope. Courts have found distance-based geographic restrictions reasonable (e.g., 50 miles from the employer’s headquarters), but also restrictions that cover the employer’s “territory.” 

Definitions of the Prohibited Activities  

Noncompete agreements should clearly identify the activities sought to be prohibited. They should be narrowly tailored only to prohibit activity that is of the same type as that actually engaged in by the former employee. For example, a noncompete agreement that prohibits a pest control employee from performing any type of work whatsoever for a competing pest control business likely would be found to be overly broad. However, a noncompete agreement that was limited to fumigation and termite control services likely would be found to be more functionally limited and, therefore, reasonable. 

Consideration 

“Consideration” in law is a benefit that each party to a contract receives (i.e., “something for something”). For example, in a contract to purchase a car, the car dealership gets the purchase price and the buyer gets the car. The same principle applies to noncompete agreements. For new employees, the consideration for the employee is the job. However, existing employees cannot be compelled to sign noncompete agreements unless additional consideration is provided — such as a raise, promotion, or bonus payment. 

Assignment Provisions 

Assignment provisions allow employers to transfer noncompete agreements to third parties, such as another company that acquires the employer. Without a proper assignment provision, the noncompete agreement may become void upon transfer of the business. 

Material Job Changes Provisions 

Most noncompete agreements are executed when a new employee is hired. However, the longer an employee stays at a company, the more likely their job duties are to change. This can create problems for employers when attempting to enforce noncompete agreements that do not encompass duties the employee took on after they were hired. To ensure that employees continue to be covered by noncompete agreements, employers should require their employees to sign a new noncompete agreement any time there is a material change in the duties the employees perform. 

Contact a Norfolk Noncompete Lawyer for Help Drafting a Noncompete Agreement 

For more information about drafting a noncompete agreement that protects your interests but is also fair to employees, please contact a Norfolk non-compete lawyer at Pierce / Jewett by calling 757-624-9323 or using our online contact form.