LEGAL OPINION ON CONTRACT TERMINATION

Background

You entered into a Non-Compete Agreement (hereinafter “Agreement”) with X Company, and you seek a legal opinion on how to terminate the said Agreement.

Issue

How to terminate the Agreement and liability attached to the termination, if any.

Rule

A Non-compete agreement is a contract between an employee and an employer. The employee undertakes not to compete with the employer while employed or after leaving the company. 

Employees are prohibited from entering markets or professions that are considered to be in direct rivalry with their employer under these legal agreements. The goal of these agreements is to deter or prevent an employee from leaving a company and taking a new job with a competitor, where he or she can use any useful information gained while at the previous job.

Non-compete agreements must still satisfy a test in order to be valid. Non-compete agreements are enforceable in Virginia if an employer can show: The restriction is “no greater than is necessary to protect the employer’s legitimate business interests”; the agreement is not overly restrictive or oppressive in restricting the employee’s ability to find another job or earn money, and the promise does not violate a clear mandate of Virginia public policy. Virginia law prevents employers from putting non-compete restrictions on their “low-wage employees” as of July 1, 2020. This rule only affects non-compete agreements signed on or after July 1, 2020. A low-wage employee in Virginia is defined as someone who earns less than $52,000 per year as of June 1, 2020, which may be recalculated by the state.

Trade secrets, sensitive information, customer/client lists, and near-permanent customer ties are among the most common legitimate business interests recognized by courts as good grounds for having a Non-Compete agreement. Moreover, Courts will be more open to enforcing Non-Compete agreements that are limited in restrictions e.g.

  • Geographical limitations to surrounding areas from where the employer conducts business;
  • Duration; often two years is the maximum allowed duration for Non-Compete agreements; and 
  • Specifying a particular restriction; determining what the employee is prohibited from doing rather than attempting to block the employee from working in a specific industry, e.g. prohibiting the employee from soliciting clients with whom they interacted while at the employer’s company.

The burden of proof for enforcing a non-compete agreement in court is on the employer. When determining the constitutionality of a non-compete clause, courts consider several issues, including whether the worker’s time restrictions are acceptable if the worker’s location restrictions are appropriate; and whether the restriction’s extent is “more than is necessary to preserve the employer’s legitimate business interest.”

Analysis

The Non-Compete agreement you entered into limits you, the Recipient, from;

  • Dealing in any business that competes with the Company while employed at the Company without the Company’s consent; 
  • Dealing in any business that competes with the Company, its Subsidiaries, current, and former clients after the termination of the Agreement, for a period not exceeding 5 years and within a 50-mile radius of Henrico Virginia; and
  • Soliciting the Company’s clients, officer, staff, or employee for their benefit or that of a third party that competes with the Company, during and after termination of the Agreement.

Conclusion 

The Non-Compete Agreement is relatively limited in its restrictions by having the 50-mile radius of Henrico Virginia geographical limit and the duration limit of not more than 5 years. However, there is no straightforward way of knowing whether the courts will enforce a Non-Compete agreement since every situation is different. 

The more specific and narrow a Non-Compete agreement is, the higher the chances of its enforcement by the courts. As expressed above, a two years’ maximum duration restriction and a specific geographical restriction on surrounding areas are often advisable, but these rules are not set in stone; hence the court may allow for longer or wider restrictions depending on the level of protection required by the Company.

The Non-Compete Agreement will only terminate when the limitation period expires, which according to the Agreement is “not to exceed 5 years” after the termination of the Non-Compete Agreement. I believe this was a drafting error since the Non-Compete Agreement is an addition to the employment agreement you entered in with the Company hence the “not to exceed 5 years” period begins running after you have terminated the employment agreement and not the Non-Compete Agreement because legally speaking you cannot terminate the Non-Compete Agreement since it is a restriction placed on you by someone else being the employer, you cannot, therefore, release yourself from obligations imposed by another person. The Non-Compete will only terminate after the restrictions imposed by it expire, or it may be terminated by the employer.

The duration restriction of “not to exceed 5 years” is vague and renders itself to manipulation since it means the restriction may terminate anytime from when the employment agreement is terminated, which although this may not have been the Company’s intention, may mean even a second from the time the said employment agreement is terminated since this is within the “not to exceed 5 years” period. In Contract law, when a contract/ agreement is vague, it is interpreted against the maker of the contract/agreement since the maker of the contract/agreement has an obligation to create an agreement that is not vague. This, therefore, means that since your employer, X company is the maker of the vague Agreement as far as the “not more than 5 years” provision is concerned, the Agreement shall be interpreted against them where the vagueness results to two or more interpretations of the Agreement, one interpretation favoring them while the other favors the other party.

In Conclusion, you cannot terminate the Non-Compete Agreement; you can only terminate the company’s employment agreement you entered into. The Non-Compete Agreement can only be terminated by the employer who releases you from the restrictions imposed in it, or it may terminate after the restrictions imposed on it have expired. In your case the vagueness on the “not more than 5 years” period in which the restrictions were to expire places you at an advantage as highlighted above, which you may use to negotiate with the employer on a preferred express duration, e.g., one year or use it in court if you choose the second option which is to challenge the validity of the Non-Compete Agreement in court.

It is also prudent to note that the said Non-Compete Agreement also has a confidentiality Section that prohibits you from disclosing any confidential information belonging to the Company “at any time”. This, therefore, means that the Agreement limits your disclosure of the Company’s confidential information during and after termination of the Agreement.

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