Virginia CPA/Accountant Non-Competition Agreements
Under Virginia law, a non-competition agreement will be strictly construed against employers and will be found to be enforceable if the agreement as a whole is found to be reasonable. Courts require non-competition agreements to be as narrowly tailored as possible to protect the vital interests of the employer while still leaving opportunity for a former employee to pursue a career. A non-competition agreement will be enforced if (1) the covenant is narrowly tailored to protect the employer’s legitimate business interest, (2) the covenant is not unduly burdensome on the employee’s ability to earn a living, and (3) the covenant is reasonable from a public policy standpoint. The employer bears the burden of proving these factors. In determining whether an employer has met its burden of proving these factors, the court looks at the function of the restriction, the geographical scope of the restriction, and the duration of the restraint. The court analyzes these aspects together, rather than as separate inquiries. Although non-competition agreements are enforceable in Virginia, they are considered disfavored restraints on trade. Due to this, the employer bears the burden of proving any ambiguities in the agreement. Further, courts will construe any ambiguities in the agreement in the employee’s favor. If a provision in a non-competition agreement is capable of more than one reasonable interpretation, a court will find it to be ambiguous. If a provision is unambiguous, it is read according to its plain meaning.
Virginia courts have determined that non-competition agreements that are overly broad pertaining to the types of activities prohibited are unenforceable. Overly broad provisions are not effective in protecting an employer’s business interests because they encompass more aspects than necessary to protect that interest. “Covenants that are ambiguous, that prevent an employee from doing work unrelated to the work that they previously did for the employer, or that go beyond the employer’s legitimate interest are unenforceable.” Each non-competition agreement must be evaluated on its own merits, considering the particular circumstance of the individual case.
Accountants often have personal connections to their clients due to the nature of their practice. When an accountant leaves his place of employment, it is not uncommon to have clients who desire to continue business with the accountant. Non-competition agreements between partners of an accounting firm are more likely to be enforceable against the departing partner because partners have equal bargaining power when drafting such agreements.
In Foti, Foti was a partner at an accounting firm who signed a partnership agreement that contained a non-competition clause. Foti submitted his letter of resignation from the firm and indicated his intention to comply with the agreement. After his resignation submission, the partners held many meetings that Foti did not attend, in recognition of the restrictive covenant he agreed to. The partners decided Foti was not allowed to accumulate any chargeable time for work done for clients, remove any working papers from the firm, and he was not to meet with any clients unless another member of the firm accompanied him. Foti then became a member of another accounting firm. Foti performed accounting services for clients from his previous firm but billed these clients to his new firm. In Foti, the former firm did not seek to restrict its partners from practicing or working as an accountant. It simply aimed to enjoin the partner from soliciting and accepting employment directly from the firm. The court determined that the restriction enforceable because it was not unreasonable as to time, area or people, was necessary to protect the legitimate interests of the firm, and was not harmful to the general public. Additionally, there was no evidence that showed the covenant would limit Foti’s ability to make a living.
Foti demonstrates that non-competition agreements between partners are different than those between an employer and employee. Partners of a firm have equal bargaining power when entering into an agreement. An agreement between partners that contains a non-competition agreement will likely be enforced because partners have equal say in the process of drafting the agreement and understand the contract they enter into. Although clients of a former accountant partner may desire to continue business, a non-competition agreement that the partner signed with his former associates may take precedent in order to prevent harm to the former firm’s business interests.