John Malyevac (the “Employee”) sold computer products for Assurance Data, Inc. (“ADI”). The two parties entered into an employment agreement which contained non-competition, non-disclosure, and non-solicitation provisions.
According to ADI, after resigning from the company, the Employee breached the agreement “by performing work and services and selling products in direct competition with ADI, by engaging in other prohibited activities, and by failing to return confidential information.” Op. at 4. ADI brought a lawsuit against the Employee to enforce the employment agreement.
The Employee filed a “demurrer” which tests the legal sufficiency of the facts in the complaint. The Employee argued that the agreement’s non-compete and non-solicitation provisions were overly broad restraints on competition. He claimed that the complaint should be dismissed for failure to state a claim upon which relief can be granted because the agreement’s vagueness and over-breadth made it unenforceable. The Employee, as an example, referred to a specific provision of the agreement that was vague. That paragraph provided that the Employee: “for a period of twelve (12) after the date of termination hereof, [he] will not, directly or indirectly, seek, engage in or solicit . . . any business which is competitive with [ADI’s] . . . .”
The Employee argued that it is impossible to know whether the duration of “twelve (12)” refers to days, weeks, months or years.
The Fairfax Circuit Court found that the employment contract was unenforceable, deciding that the lawsuit brought by ADI on the unenforceable contract must therefore be dismissed. The Court reasoned that there can be no cause of action for breach of contract if there is not an enforceable contract.
The Virginia Supreme Court disagreed with the lower court’s holding. The Supreme Court stated that the Circuit Court overstepped its bounds by dismissing the case on demurrer because ADI should have been allowed to present evidence to prove that the restraints contained in the non-compete were reasonable under the particular circumstances.
A “demurrer” tests the legal sufficiency of facts alleged in pleadings, not the strength of proof. Op. at 6 (citing Dunn, McCormack & MacPherson v. Connolly, 281 Va. 553, 557 (2011)). A complaint does not need to provide “details of proof” to overcome a challenge on demurrer. Op. at 7 (citing CaterCorp, Inc. v. Catering Concepts, Inc., 246 Va. 22, 24 (1993)). The complaint must merely show the nature of the claim. Id.
The Supreme Court, therefore, decided that the lower court was not supposed to examine the agreement’s non-compete and non-solicitation provisions to determine their enforceability without permitting ADI to present evidence. ADI should have been permitted to demonstrate that the restraints were limited enough under the non-compete standard which dictates that they be “no greater than necessary to protect [ADI’s] legitimate business interests, . . . not unduly harsh or oppressive in curtailing [the Employee’s] ability to earn a livelihood, and . . . reasonable in light of sound public policy. Op. at 10 (citing Modern Environments, Inc. v. Stinnet, 263 Va. 491, 493 (2002)).
This case shows that when an employer attempts to enforce an employment agreement by filing a law suit, the case will no longer be dismissed on demurrer in response to an argument that the employment agreement is overbroad and vague, as was frequently the case prior to this decision. A court will allow “[a]n employer [to] prove a seemingly overbroad restraint to be reasonable under the particular circumstances of the case” before it can be said that the agreement is unenforceable. Op. at 9 (citing Simmons v. Miller, 261 Va. 561, 581 (2001)). This case will likely give more leverage to employers when attempting to enforce restrictions, as a former employee will need to undergo the expense of an evidentiary hearing prior to determining whether the employee is subject to a broad non-compete.
Click here to read the Court’s opinion.