United States: Protecting Your Legitimate Business Interests

"Restrictive provisions of this character have been dealt with by courts in almost unnumbered cases. A great array of them are cited in a learned and elaborate opinion by Judge Hoover, of the Court of Common Pleas of Ohio, Cuyahoga County, in the case of Arthur Murray Dance Studios v. Witter, 105 N.E.2d 685, in which he referred to the authorities as constituting a vast sea out of which one could fish out ‘any kind of strange support for anything, if he lives so long.’ The result of his own expedition is stated to be: ‘Each case must be determined on its own particular facts."’ Meissel v. Finley, 198 Va. 577, 579, 95 S.E.2d 186, 188 (1956).

1. Protect against disclosure and misappropriation of business interests (customers, sales, profits, goodwill and confidential information or trade secrets such as client lists, operational methodology, pricing, profit margins) by employees, independent contractors, licensees, lessees, partners, joint venturers, sellers of a business, or any other contracting party with knowledge of a company’s confidential and proprietary information or a significant level of customer contact.
2. Allow more open discussion and sharing of confidential information among employees to enhance and improve operations without losing control over the company’s secrets. If a firm cannot protect that information from dissemination to competitors, the incentive for developing such information may be eliminated. Eden Harmon & Co. v. Sumitomo Trust & Banking Co., 914 F.2d 556 (4th Cir. 1990).
3. Ensure recovery of training costs expended on employees.
4. Covenants not to compete are necessary because: (a) it is difficult to prove the misappropriation and use of a trade secret or violation of a nondisclosure provision, which can seldom be proven by direct evidence as opposed to inferences drawn from circumstantial evidence; (b) most courts require proof that the disclosure has already occurred before it will enjoin further disclosure; and (c) policing compliance with an injunction prohibiting disclosure of confidential information and trade secrets by a former employee is very difficult when the employee is still working for a competitor and needs to use the information to fully perform for the new employer. The covenant not to compete makes it more difficult for the former employee to pass on confidential information or trade secrets to the competitor. Eden Hannon & Co. v. Sumitomo Trust & Banking Co., supra.

1. Freedom of Contract (Employer Interest)- strongly supported by the law of Virginia. The Courts must give effect to the intention of the parties as expressed in their contract.

1. It is well-established in Virginia that the Court must give effect to the intention of the parties as expressed in the language of their agreements, including noncompetition and nonsolicitation agreements. Rash v. Hilb, Rogal & Hamilton Co. of Richmond, 251 Va. 281, 285, 467 S.E.2d 791, 794 (1996); Foti v. Cook, 220 Va. 800, 263 S.E.2d 430, 433 (1980). An individual’s right of freedom to contract has been consistently and zealously guarded by this Commonwealth. "The parties’ contract becomes the law of the case unless it is repugnant to some rule of law or public policy." Rash, 251 Va. at 285-86 (quoting Winn v. Aleda Constr. Co., 227 Va. 304, 307, 315 S.E.2d 193, 194 (1984); accord D.C. McClain, Inc. v. Arlington County, 249 Va. 131, 135, 452 S.E.2d 659, 662 (1995)). See also Meissel v. Finley, 198 Va. 577, 584, 95 S.E.2d 186, 191 (1956) ("While the law frowns upon unreasonable restrictions, it favors the enforcement of contracts intended to protect legitimate interests. It is as much a matter of public concern to see that valid engagements are observed as it is to frustrate oppressive ones."); Shuttleworth, Ruloff and Giordano, P.C. v. Nutter, 493 S.E.2d 364 (Va. 1997) ("[T]he law looks with favor upon the making of contracts between competent parties upon valid consideration and for lawful purposes, and ‘courts are averse to holding contracts unenforceable on the ground of public policy unless their illegality is clear and certain."’)

2. Right of Employees to Seek Gainful Employment (Employee Interest) and Abhorrence of Restrictions on Competition (Public Interest)

1. Stoneman v. Wilson, 169 Va. 239, 245, 192 S.E. 816 (1938)- noting that by early common law, any limitation upon the right of one to work was against public policy, and that while this rule has been relaxed, it is still subject to strict limitations. "One may not be restrained from following all vocations for which he is fitted. Such a restraint would be against public policy and might make him a public charge."

1. Strictly Construed - Covenants not to compete are disfavored by the law because of their anti-competitive effect and the fear of limiting one’s ability to work; therefore, any broad or ambiguous language will be strictly construed against the employer. Richardson v. Paxton, 203 Va. 790, 127 S.E.2d 113 (1962); Linville v. Servisoft of Va., Inc., 211 Va. 53, 174 S.E.2d 785 (1970); Clinch Valley Physicians, Inc. v. Garcia, 243 Va. 286, 289, 414 S.E.2d 599, 601 (1992) (holding that if the language is ambiguous, "the court will adopt that construction most favorable to the employee."); Grant v. Carotek, Inc., 737 F.2d 410, 411 (4th Cir. 1984); Alston Studios, Inc. v. Gress & Assoc., 492 F.2d 279 (4th Cir. 1974); Roto-Die Co., Inc. v. Lesser, 899 F.Supp. 1515, 1519 (W.D.Va. 1995).
2. More Deference Given in the Context of the Sale of a Business - Covenants in agreements to sell businesses and in partnership agreements are given somewhat more deference. Richardson v. Paxton, supra, ("[T]he scope of permissible restraint is more limited between employer and employee than between seller and buyer ..."); Stoneman v. Wilson, supra; Linville v. Servisoft of Va., Inc., supra; Foti v. Cook, supra; Grant v. Carotek, Inc., supra; Alston Studios, Inc. v. Gress & Assoc., supra; Roto-Die Co., Inc. v. Lesser, supra; National Homes Corp. v. Lester Indus., Inc., 293 F.Supp. 1025 (W.D.Va.), aff’d in part, rev’d in part, 404 F.2d 225 (4th Cir. 1968).
3. Burden of Proof - Employer has burden of proving that covenant is reasonable. Richardson v. Paxton, supra; Linville v. Servisoft of Va., Inc., supra; Grant v. Carotek, Inc., supra ; Alston Studios, Inc. v. Gress & Assoc., supra; Roto-Die Co., Inc. v. Lesser, supra.

1. Is the restraint, from the standpoint of the employer, reasonable in the sense that it is no greater than necessary to protect the employer in some legitimate business interest?
2. From the standpoint of the employee, is the restraint reasonable in the sense that it is not unduly harsh and oppressive in curtailing legitimate efforts to earn a livelihood?
3. Is the restraint reasonable from the standpoint of sound public policy?

Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 389 S.E.2d 467 (1990).

1. General Restrictions on Competition- If the former employee is being restrained from competing with the employer, the restriction must be carefully circumscribed to reflect the employer’s business interests.

1. Duration Limited- restriction should be limited to a specific period of time. The reasonableness of duration is determined by examining a number of factors, including the length of time that the employer can reasonably expect to be doing business with the customer, the amount of time between purchases by customers, and the type of goods or services being purchased. Meissel v. Finley, supra (holding that a partnership had an interest in renewing its clients’ insurance policies when they expired every three to five years, making a five year limitation reasonable); Annot., Enforceability of Restrictive Covenant, Ancillary to Employment Contract, As Affected by Duration of Restriction, 41 A.L.R.2d 1. Generally, durations of 4 or more years that lack any business justification will be found unenforceable.
2. Geographic Limitations- restriction should cover geographic areas in which the employer is already making sales or has existing customers. See Advanced Marine Enterprises, Inc. v. PRC. Inc., 1998 WL 312881 (Va. June 5, 1998) (upholding a restriction of 50 miles from each of the plaintiff’s 300 offices); Roanoke Engineering Sales Co., Inc. v.Rosenbaum, 223 Va. 548, 290 S.E.2d 882 (1982); New River Media Group, Inc. v. Knighton, 245 Va. 367, 429 S.E.2d 25 (1993). While some courts have allowed employers to restrict competition in areas which they consider to be prospective markets or where they are actively marketing (Comprehensive Technologies Int’l, Inc. v. Software Artisans, Inc., 3 F.3d 730 (4th Cir. 1993), vacated (4th Cir. 1993) (upholding a nationwide restriction based upon marketing activities in thirty states), this is an aggressive approach which could cause the entire covenant to fail. Power Distribution, Inc. v. Emergency Power Engineering, Inc., 569 E.Supp. 54 (E.D.Va. 1983) (stating that a broad geographic restriction cannot be founded upon a company’s previously having done business there or hoping to do business there again); Pais v. Automation Products, Inc., 36 Va. Cir. 230 (1995) (refusing to uphold a geographic scope beyond the area of existing sales). Virginia does not appear to have accepted a geographic restriction that is founded solely upon marketing efforts.
3. Business or Activity Limitations- THIS IS WHERE MOST NONCOMPETITION PROVISIONS FAIL. The restriction must be limited to the type of business currently being performed by the employer. This is much more difficult to draft accurately than it seems because most companies have a tendency to describe their business generally or in marketing terms. The language used must be precise and limited to actual services and products provided. Any ambiguity in this section can result in an overbroad restriction. See Richardson v. Paxton, supra (holding that the prohibited activities were overbroad since they included activities in which the employer was not engaged, i.e. any branch of activities, not just sales, related to marine or industrial equipment, supplies or services); Roto-Die Co., Inc. v. Lesser, supra (holding that the restriction would prevent the employee from working in any capacity for a competitor, including a janitor); Power Distribution. Inc. v. Emergency Power Engineering, Inc., supra; Grant v. Carotek, Inc., supra.

1. DRAFTING TIP NO. 1- obtain a precise description of the client’s business by asking exactly what goods and services it provides, and avoid the temptation to describe the business by general industry type.
2. DRAFTING TIP NO. 2- match the activity and level of the restriction with the particular employee that is being restricted. For lower level employees, the restriction is more likely to be enforced if limited to the geographic area serviced by the employee and the area of the business in which the employee is engaged. Alternatively, consider drafting the activity limitation so that it is based upon the lower level employee’s position and duties at the time of termination. On the other hand, greater restrictions are warranted for the higher level manager or officer. Such an employee has access to the businesses’ confidential information and intimate knowledge of how the business operates such that he or she could set up shop across the street.

4. Encompass All Forms of Competition- in Linville v. Servisoft of Va., Inc., supra, the court refused to enforce a covenant not to compete against a former employee who started his own business to compete with employer, because the restriction only precluded the former employee from being employed by a competitor. To avoid this result, all noncompetition clauses should include a provision which limits the employees ability to compete with the employer regardless of the operating form selected, i.e., as an employee, independent contractor, investor, lender, surety, etc.

2. Legitimate Interests in Customers- Since customers are themselves a legitimate business interest, the courts will generally enforce customer nonsolicitation provisions, even in the absence of a geographic restriction (i.e., a business has a legitimate interest in serving its customer regardless of the customer’s location). See Product Dev. Mfg. and Packaging, Inc. v. Johnson, VLW 098-12-04; Hilb, Rogal and Hamilton Co. of Richmond v. DePew, 247 Va. 240, 440 S.E.2d 918 (1994); Foti v. Cook, supra; Paramount Termite Control Co., Inc. v. Rector, 238 Va. 171, 380 S.E.2d 922 (1989); Alan J. Zuccari, Inc. v. Adams, 42 Va. Cir. 132 (1997) (Circuit Court of Fairfax County, J. Keith, presiding); 54A Am.Jur.2d, Monopolies, Restraints of Trade, and Unfair Trade Practices § 910. But see Nida v. Business Advisory Systems, Inc., 44 Va. Cir. 487 (1998) (Circuit Court of the City of Winchester). Be careful to explain this anomaly during litigation, since the geographic limitation is sometimes mistakenly applied as part of the 3-prong test. Finally, such nonsolicitation provisions are harder to police than general provisions against competition since proving direct or indirect solicitation is more difficult. For this reason, the business should also consider limiting the former employee’s right to perform any services for the customer regardless of who initiates the contact. See Hilb, Rogal and Hamilton Co. of Richmond v. DePew, supra.
3. Legitimate Interests in Employees- In Therapy Services, Inc. v. Crystal City Nursing Center, Inc., 239 Va. 385, 389 S.E.2d 710 (1990), the Virginia Supreme Court recognized that employers have a legitimate interest in protecting their ability to maintain professional personnel in their employ.

1. DRAFTING TIP NO. 3- set forth a customer and employee nonsolicitation provision in a section. of the contract separate from the covenant not to compete to avoid the risk of having it declared void on the ground it is not severable from an unenforceable, general provision. (see Roto-Die Co., Inc. v. Lesser, supra). It is also less likely to be tainted by an overly aggressive noncompetition clause.
2. DRAFTING TIP NO. 4- refer to the customer and employee restriction as a "nonsolicitation" clause, instead of a covenant not to compete, to avoid having the provision inadvertently stricken because it lacks a geographic limitation. Where nonsolicitation provisions are insufficiently separated or distinguished from noncompetition provisions, the geographic limitation required of noncompetition provisions may be inadvertently applied.
3. DRAFTING TIP NO. 5- the customers should be specifically identified as, for example, those with whom the employee had direct contact and/or all customers of the business within 1 or 2 years prior to the termination of employment. Direct customer contact by the employee creates a greater threat to the employer that the employee will be able to take the customer away from the employer after the employment ends. A business also has a legitimate interest in its prior clients even though it has not recently provided them goods or services. There is a period of time, however, after which your prior relationship with a customer cannot be expected to directly result in additional business. This period of time will vary from industry to industry. Professional service firms, such as doctors, lawyers, accountants, engineers and architects, who have substantial client contact during the performance of their services and in whom clients place a significant amount of trust are more likely to be granted a greater period of protection than a business that simply sells a product to a customer over the internet. Annot., Enforceability of Restrictive Covenant, Ancillary to Employment Contract, As Affected by Duration of Restriction, 41 A.L.R.2d 1, § 14.

4. Other Factors Affecting Legitimacy of Business Interest

1. Level of the Employee’s Customer Contact- the more contact, the greater justification for a noncompetition covenant due to the likelihood that the customer will follow the employee to a competitor. See Paramount Termite Control v. Rector, supra; Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, supra (holding that customer contact will be enough to justify a noncompetition provision even if the employee does not have access to confidential information); Stoneman v. Wilson, supra; Eden Harmon & Co. v. Sumitomo Trust & Banking Co., supra. This is a particularly important issue in agreements among professionals, where the client tends to have a close relationship of personal confidence and trust with the employee and customers use the same professional’s services over longer periods of time. See Foti v. Cook, supra; Annot., Enforceability of Restrictive Covenant, Ancillary to Employment Contract, As Affected by Duration of Restriction, 41 A.L.R.2d 1.
2. Knowledge of Confidential Information and Trade Secrets / Character of Employment- The courts are typically more willing to restrain upper-level employees, owners or partners from competing because they have access to and can misappropriate confidential information. Stoneman v. Wilson, supra; Roanoke Engineering Sales Co., Inc. v. Rosenbaum, supra; Foti v. Cook, supra; Meissel v. Finley, supra . However, such restrictions may still be enforced against lower level employees without access to confidential information. Paramount Termite Control v. Rector, supra; Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, supra.
3. Acquisition of Specific Skills- investment in an employee by training him/her to perform valuable skills is also a consideration in favor of restricting competition.
4. 2nd Prong- Employee’s Interest in Earning a Living

1. Flip Side- the analysis of whether the employee is unduly oppressed in his ability to earn a livelihood is usually subsumed in the analysis conducted in the 1st Prong.
2. The employee should not be precluded from working for a competitor in any capacity. The limitation must be related to the employer’s type of business, goods or services. Hence, the employee must be allowed to work for a competitor in other aspects of its business, unrelated to the prior employer’s business, or in other geographic areas. See Richardson v. Paxton, supra; Grant v. Carotek,. Inc., supra; Alston Studios, Inc. v. Gress & Assoc., supra; Power Distribution, Inc. v. Emergency Power Engineering, Inc., supra.
3. The court will consider the economic hardship being imposed upon the employee and his/her ability to find other employment. Paramount Termite Control v. Rector, supra.

5. 3rd Prong- Public’s Interest in Competition

1. The public’s interest is primarily considered when the employer’s market is less competitive and somewhat monopolistic. Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick, supra; Paramount Termite Control v. Rector, supra. The courts will also consider whether there is a shortage in the employee’s services and whether the employee’s inability to obtain other employment could cause the employee to become a public charge. Stoneman v. Wilson, supra.

F. Indirect Violations of Covenants Not to Compete - on several occasions, the courts have enforced covenants not to compete against individuals that have not executed the agreement. See Foti v. Cook, supra (holding that the covenant also prohibits other members of an accountant’s new firm from performing services for the former accounting firm’s customers since this would indirectly violate the covenant); Rash v. Hilb, Rogal & Hamilton Co. of Richmond, supra (prohibiting a husband from indirectly violating his noncompetition covenant by having his wife establish the competing business).

G. Failure to Sign Written Noncompetition Agreement - on the other hand, the Virginia Supreme Court more recently ruled that a defendant partner was not subject to a covenant not to compete set forth in the plaintiff’s Partnership Agreement, because the defendant partner had not signed the written agreement and the evidence did not support a finding that the parties had a meeting of the minds on the terms of a noncompetition provision. Persinger & Co. v. Larrow, 252 Va. 404, 477 S.E.2d 506 (1996). This decision turned on the fundamental requirement that such agreements be strictly construed and that the party seeking to enforce the noncompetition clause bears the burden of proof. Also note that this agreement was between partners and, if in writing, would have been accorded more deference. See also Annot., Enforceability of Sale-of-Business Agreement Not to Compete Against Nonsigner or Nonowning Signer, 60 A.L.R.4th 294.

H. Sale of a Business- see Stoneman v. Wilson, supra; National Homes Corp. v. Lester Indus., Inc., supra; Burchell v. Capitol City Dairy, 158 Va. 6, 163 S.E. 81 (1932); Annot., Enforceability of Covenant Against Competition, Ancillary to Sale or Other Transfer of Business, Practice or Property, As Affected by Duration of Restriction, 45 A.L.R.2d 77; Annot., Enforceability of Covenant Against Competition, Ancillary to Sale or Other Transfer of Business, Practice or Property, As Affected by Territorial Extent of Restriction, 46 A.L.R.2d 119; Annot., Validity and Construction of Contractual Restriction on Right of Accountant to Practice, Incident to Sale of Practice or Withdrawal From Accountancy Partnership, 13 A.L.R.4th 661; Annot., Validity and Construction of Contractual Restrictions on Right of Medical Practitioner to Practice, Incident to Sale of Practice, 62 A.L.R.3d 918.

I. Assignability of Covenant - if the business entitled to the benefit of the provision is sold (e.g., a stock sale), goodwill is transferred in the sale and the purchaser will be entitled to enforce the covenant not to compete, not the seller. Burchell v. Capitol City Dairy, supra. However, if the transaction is merely an asset sale and does not specifically include goodwill, the right to enforce the covenant may not have been transferred to the purchaser.

J. Bankruptcy Discharge and Rejection of Covenant Not to Compete - there is substantial concern whether a covenant not to compete can be discharged in bankruptcy upon the debtor’s rejection of the executory contract containing the provision. See, e.g., Robert J. Miller, The Impact of Executory Contract Rejection and Discharge Upon the Enforcement of a Covenant Not to Compete Against the Debtor, ABA, Business Law Section, Task Force on Documenting Bankruptcy Aspects of Business Transactions, April 8, 1994.

K. Severance Pay - in Alston Studios, Inc. v. Gress & Assoc., supra, the court held that the provision for severance pay and the noncompetition provision were mutually dependent because neither party could insist upon the other’s performance unless he himself performed. Consequently, severance pay was the primary consideration for the covenant and so interwoven with it that severing the provisions was not possible. Since the noncompetition provision was found to be unenforceable, no severance pay was required.

L. Blue-Lining - Employers’ requests that the Virginia courts rewrite an agreement to excise or modify overly restrictive covenants have not been directly ruled upon by the Virginia Supreme Court, but have been routinely rejected by the local circuit courts. Nida v. Business Advisory Systems, Inc., supra; Pais v. Automation Products, Inc., 36 Va. Cir. 230 (1995); Northern Virginia Psychiatric Group, P.C. v. Halpern, 19 Va. Cir. 279 (1990); Kida v. Chesterfield Veterinary Clinic, Inc., 19 Va. Cir. 95(1990). This position is founded primarily on (a) the decisions in Richardson v. Paxton, supra, Roto-Die Co., Inc. v. Lesser, supra, Grant v. Carotek, Inc., supra; Alston Studios. Inc. v. Gress & Assoc., supra; Power Distribution, Inc. v. Emergency Power Engineering, Inc., supra; (b) the general disfavor with which such agreements are viewed; and (c) Virginia’s consistent reluctance to alter a bargain. However, this issue does not appear to have been decided where the agreement includes a provision granting the court authority to perform such a function and parties may wish to include such authority in their agreements. Furthermore, consider the desire of the Virginia Supreme Court to reach an equitable result in Roanoke Engineering Sales Co., Inc. v. Rosenbaum, supra, by prospectively enforcing the limitation from the date of the injunction, although contrary to the period agreed to by the parties. See also Orkin Exterminating Co., Inc. v. Farmer, 1988 W.L. 410445 (W.D.Va. No. 87-0221-R July 17, 1988) (concluding that consistent with the modern trend in a majority of jurisdictions, Virginia would apply the blue-pencil rule); 17 C.J.S. Contracts, § 289.

M. Severability - the covenant should be drafted with separate paragraphs or sub-paragraphs for each different type of restriction and the agreement should include a standard severability clause. This may allow the less restrictive portions of a covenant to survive if the court finds that it can sever the overly restrictive portions without frustrating the intent of the parties. See Roto-Die Co., Inc. v. Lesser, supra (severing unenforceable subparagraphs from a covenant); Alston Studios, Inc. v. Gress & Assoc., supra (refusing to sever a noncompetition provision from a severance pay provision).

N. Choice of Law - selecting the applicable law for the interpretation and construction of the covenant is necessary to ensure that it has been drafted with the proper restraints. Virginia enforces choice of law provisions where the state is reasonably related to the purpose of the agreement. Hooper v. Mussolino, 234 Va. 558, 566, 364 S.E.2d 207, 211 (1988), cert. denied, 488 U.S. 823. Virginia will also enforce forum selection clauses unless shown to be unfair and unreasonable or affected by fraud or unequal bargaining power. Paul Business Systems, Inc. v. Canon U.S.A., Inc., 240 Va. 337, 397 S.E.2d 804 (1990).

O. Liquidated Damages - see Foti v. Cook, supra; Product Dev. Mfg. and Packaging, Inc. v. Johnson, VLW 098-12-04.

A. Potential Causes of Action- the raiding company, the target employer and the employee must all analyze whether the raiding company’s and employee’s actions constitute: (1) tortious interference with contracts; (2) conspiracy to tortiously interfere with contracts; (3) statutory conspiracy to injure one in his/her trade or business; (4) breach of the employment or noncompetition agreement; (5) conspiracy to breach the employment or noncompetition agreement; (6) breach of fiduciary duties by employee; (7) conspiracy to breach fiduciary duties; (8) violation of Virginia Trade Secrets Act; and (9) defamation. See Daniel P. Lyon and R. Peyton Mahaffey, When Is Raiding A Competitor’s Employees Illegal?, Virginia Business Law Journal, 1996, and cases cited therein; Advanced Marine Enterprises, Inc. v. PRC, Inc.,1998 WL 312881 (Va. June 5, 1998); Hilb, Rogal and Hamilton Co. of Richmond v. DePew, supra; Nida v. Business Advisory Systems, Inc., supra.

B. Advanced Marine Enterprises, Inc. v. PRC, Inc., supra- Plaintiff PRC, Inc. ("PRC") and Defendant Advanced Marine Enterprises, Inc. ("AME") are competitors in the business of providing marine engineering services to the Naval Sea Systems Command ("NAVSEA"). PRC requires every new employee to sign an Employment Agreement that contains nondisclosure and noncompetition/nonsolicitation provisions. Employees agreed not to compete with PRC for a period of 8 months after termination and not to solicit any customer of PRC for whom the employee performed services while employed, within 50 miles of a PRC office. PRC lost some of its marine engineering contracts and informed it marine engineering employees that they should look for other employment. Subsequently, a PRC senior manager contacted AME and together they developed a plan for AME to covertly hire the entire PRC marine engineering department and take PRC’s existing contracts and customer relationships. AME was aware of the Employment Agreements. Consistent with the plan, the entire department submitted letters of resignation on the same day (none too smart are they?), and took or copied client files, both electronic and hard copy. The Chancellor found that: (1) the noncompetition and nonsolicitation provisions were enforceable and the injunction could be applied prospectively; (2) the defendants had violated Va. Code §§ 18.2-499 and 18.2-500; (3) AME tortiously interfered with PRC’s contractual relationships and business expectancies; and (4) the individual defendants breached their fiduciary duties and Employment Agreements. The Court awarded PRC $1,245,062 in compensatory damages for lost goodwill, trebled the compensatory award pursuant to Va. Code § 18.2-500 and awarded attorney’s fees and costs, awarded PRC $350,000 in punitive damages and enjoined the individual defendants from violating the Employment Agreements for 7 and 1/2 months. The Virginia Supreme Court upheld all challenges related to the noncompetition provision and injunction, the evidence of lost goodwill, the conspiracy, and the award of punitive and treble damages by a Chancellor sitting in equity, but reduced the amount of costs and prejudgment interest awarded.

C. Drafting Tip No. 6- include in your employment applications and/or agreements a representation by the employee that he/she is not subject to any covenants not to compete or other contractual restrictions limiting the scope of his/her employment.