Case: NVR, Inc. v. Nelson, No. 1:16-cv-1328, (E.D. Va. Feb 14, 2017)
Issues: Non-Compete Agreements
Holding: The court found that NVR’s non-compete agreement was ambiguous and overbroad, and, as such, unenforceable.
Employment Counsel: Non-compete/Non-solicitation agreements are important documents that all employers should consider for employees – especially key employees. However, to be enforceable, the agreement needs to be narrow in scope and clear in application solely to protect the legitimate interests of the employer and not unduly restrict the employment rights of the employee.
In this case, the plaintiff, NVR, Inc. (“NVR”), sold and constructed homes in 14 states, including North Carolina. It sought to enjoin one of it’s former employees, David Nelson, from working for Simonini Homes, Inc., another home developer and construction company. Before Nelson was terminated for underperformance in August 2016, he was a Division Manager in the Charlotte area who dealt with sales, profits and losses, home construction projects, and the company’s strategic decisions. In October 2016, Nelson joined Simonini.
Nelson signed a non-compete agreement that specified that for a year following the termination of his employment with NVR, Nelson was prevented from working in the areas of “residential homebuilding, mortgage financing, or settlement services” for any NVR competitor in the “Restricted Area” which included “those counties…in which the Company engaged in…business activities… [and] over which you had any management responsibility at any time during the twenty-four months prior to termination of your Service.” NVR argued that by joining Simonini, Nelson violated his non-compete agreement.
The court determined that it only needed to give detailed analysis to the agreement’s restriction on employment functions and its geographic scope.
(1) Restricted Employment Functions: the court did not find the non-compete overly broad. Although the agreement detailed a wide range of employment activities, Virginia courts have found similar restrictions on employment functions to be valid.
(2) Geographic Scope: The court’s finding that the non-compete agreement was invalid arose out of a provision that limited Nelson from working in regions “from which [he] received, as part of your work duties, Confidential Information regarding such business activity.” The court pointed out that since NVR failed to narrowly define “Confidential Information” and “what it means for [that] information to come from an area” the provision was ambiguous and overbroad. For example, a Chicago NVR employee could send a package, or even an email, containing Confidential Information to Nelson, and Nelson could interpret his non-compete as enjoining him from working in similar employment in Chicago. Thus, Nelson’s non-compete placed an unreasonable burden on him to determine which geographic areas he was barred from working in. Accordingly, the court determined that the non-compete agreement was unenforceable.
For additional information about this case or other employment law matters, please contact Merritt Green at firstname.lastname@example.org or (703)556-6505. Mr. Green leads General Counsel, P.C.’s Employment Law Practice and has been representing employers (and occasionally employees) for over 18 years.