Virginia Supreme Court Reverses Dismissal Of Non-Compete Case, Emphasizing Need For Case-By-Case Analysis

In Assurance Data, Inc. v. John Malyevac, No. 121989 (Sept. 12, 2013), the Supreme Court of Virginia held that the Fairfax County Circuit Court had been too quick to rule on the enforceability of a covenant not to compete, reversing the court's dismissal of the employer's complaint and remanding the case to the trial court. This ruling signals an important shift in the procedural and strategic landscape surrounding non-compete agreements in the Commonwealth, as the court has effectively limited a frequently used device for challenging and disposing of non-compete claims early in litigation.

Facts

While employed by Assurance Data, Inc., the employee entered into an employment agreement (the Agreement) prohibiting him from soliciting, providing, promoting or selling products or services that competed with the company within a 50 mile radius of its Virginia office for six months after termination. The Agreement also prohibited the employee from soliciting customers of the company for any business which is competitive with the company "for a period of twelve (12) [sic] after the date of termination . . .."

After resigning, the employee went to work for another company, where he engaged in competing activities. His former employer filed suit to enforce the Agreement, to request the return of all confidential information, and to recover compensatory damages.

The former employee filed a demurrer to the complaint,1 claiming that the allegations failed to state a claim upon which relief could be granted. Specifically, he argued that the non-compete and non-solicitation provisions in the Agreement were overbroad and unenforceable. By way of example, he pointed to the provision prohibiting him from soliciting customers for "twelve (12) [sic] after the date of termination" with no indication whether the duration was days, weeks, months or years. His former company argued that the court could not decide the enforceability issue on demurrer, because doing so would deny it the opportunity to present evidence that the restraints are reasonable and no greater than necessary to protect its legitimate business interests. The Fairfax County Circuit Court disagreed with his former company, and sustained the demurrer without leave to amend, holding "as a matter of law the provision is unenforceable."

Supreme Court Ruling

On appeal, the Supreme Court of Virginia restated that the purpose of a demurrer is to determine whether a complaint states a cause of action...