Employers should review and tighten non-compete provisions

The Virginia Supreme Court has recently made an employer’s ability to enforce a noncompete even more difficult. Omniplex World Services Corp. v. U.S. Investigation Services, 270 Va. 246, 618 S.E. 2d 340 (2005). The Court held a narrowly drafted noncompetition provision with a duration of less than a year to be overbroad and unenforceable based on the restriction's hypothetical application.

In Omniplex, the employer hired a low-level administrative employee to work in a support role at a location of a sensitive government agency customer. The employee held a coveted security clearance she obtained while working for another company and was required to enter into a noncompete with Omniplex. The Omniplex covenant was for a short duration of less than a year, restricted employment activities with respect to a single government agency customer, and was triggered only if the same level of security clearance was required for the new employment. The provision, however, did not include a geographic limitation, nor did it require that the employee be engaged in activity in direct competition with Omniplex.

“Using a form noncompetition provision for all employees is never a wise practice.”

The majority pointed out that the covenant not to compete at issue prevented the employee from engaging in activities that actually or potentially competed with the employee’s former employer and that covenants not to compete had been upheld only where employees were prohibited from competing directly with a former employer or through employment with a direct competitor. The court found the Omniplex covenant to be overly broad because it prohibited an employee from working with any business that provided support to Omniplex’s government customer and was not limited to security staffing businesses that competed with Omniplex. The majority supported its position based on a hypothetical example where the covenant would prohibit an employee from working as a delivery person for a vendor that delivered materials to the government customer even if the vendor was not a staffing service that competed with Omniplex. The court did not take into account that this employee had not left Omniplex in order to be a delivery person for a company that served the government contractor, but worked for a staffing service that provided the same type of service that Omniplex provided to that customer.

Omniplex argued that it sought to protect its workforce from “poaching” by other security staff companies that needed employees who already had government security clearances. The court’s holdings suggest that, in Virginia, a restrictive covenant may not be enforceable if it is directed at protecting a business interest other than restricting direct competition.

Omniplex teaches employers that one size definitely does not fit all. Using a form noncompetition provision for all employees is never a wise practice. Each noncompete provisions must be narrowly drafted in order to protect the legitimate business interests of the employer as applied to each individual employee. Employers should concentrate on preparing agreements for high-level employees with significant access to confidential information and customer relationships. These are the employees who will harm the organization should they leave to work for a competitor. All noncompetition provisions should be narrowly tailored and customized to reflect the nature of the particular employer/employee relationship.

For more information regarding the recent Omniplex case or for assistance in drafting or enforcing a noncompete provision, please contact Mary Elizabeth Davis.

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice. Readers with particular needs on specific issues should retain the services of competent counsel.