As a general rule, Virginia courts are reluctant to enforce non-compete agreements because they are disfavored restraints on trade. However, when the agreements are narrowly tailored, restrictive covenants will be enforced. A recent decision from the United States District Court for the Eastern District of Virginia provides good guidance as to what type of agreement will be upheld. Update, Inc. v. Lawrence Samilow, Case No. 1;18-cv-00462-TSE-JFA (E.D. Va. 5/17/18).
Update is in the business of providing staffing and e-discovery services to clients in the legal industry. The defendant employee, Lawrence Samilow, was the company’s senior sales executive. A year after he was promoted into this role, he was asked to sign a non-competition and non-solicitation agreement in connection with a new compensation plan. The Non-Solicitation Clause provided as follows:
I acknowledge that information about [plaintiff’s] customers and customer prospects is confidential competitive information and constitutes a valuable trade secret. Accordingly, I agree that during the term of this agreement and for a period of one (1) year after my employment ends, I will not, either directly or indirectly, separately or in association with others, solicit or encourage others to solicit any of [plaintiff’s] customers or customer prospects located within fifty (50) miles of any office, branch office, or production facility of the [plaintiff] or with whom I had any contact during the term of my employment for the purpose of diverting or taking away business from [plaintiff].
The Non-Compete clause provided:
I agree that during the term of my employment with Company, and for one (1) year after my employment ends for any reason, I will not directly or indirectly compete with Company by providing to another person or entity in competition with Company (defined below) the same or similar services as those that I provided to the Company during the term of my employment with Company. For purposes of this agreement, a person or entity is in competition with the Company if it provides legal staffing, managed review, legal consulting, information governance, electronic data discovery and litigation support services within fifty (50) miles of any office, branch office, or production facility of the Company, with the exception of any person or entity listed below as a “Prior Relationship”. This covenant not to compete is limited to the types of activities and services included within my Job Description described in my offer letter.
On January 10, 2018, Samilow resigned and formed his own firm providing e-discovery and legal staffing services similar to those offered by Update. Soon thereafter, he began contacting law firms with whom he had worked while at Update and solicited their business, and, according to the Court’s opinion, he was providing services similar to Updates to two of their clients.
Update moved for a preliminary injunction, asking the court to enjoin Samilow from soliciting its clients and providing similar services within 50 miles of its New York headquarters. The Court granted the injunction, finding the one year duration and geographic scope limitations to be reasonable. Additionally, the Court found that the fact that the work proscribed by the non-compete was limited to the “types of activities and services included within [Samilow’s] job description described in his offer letter” showed that the clause was not unreasonable in its functional scope.
In an effort to invalidate the agreement, Samilow’s attorneys argued that the inclusion of a “blue pencil” clause (allowing the court to strike or revise terms it deemed to be over-broad) made the entire agreement invalid. While Virginia courts have no authority to rewrite over-broad restrictive covenants (and a number of Circuit Court cases have found blue pencil clauses to be invalid), there is no Virginia authority holding that the mere inclusion of a blue pencil clause invalidates the entire agreement. As stated by Judge Ellis, “a rule of law that would strike an entire non-compete agreement because of the inclusion of an invalid blue pencil clause does not comport with common sense or sound public policy.”
While the Update case is far from over (Samilow has filed a motion to lift the injunction), Judge Ellis’s opinion provides valuable insight into the type of restrictive covenant that will be enforced by a Virginia court.