In a recently decided case, Update Inc. v. Samilow, the Eastern District of Virginia held that a non-compete agreement with a one-year duration and 50 miles from any office geographic scope was enforceable. There, the plaintiff, Update, Inc. (“Update”), employed defendant, Lawrence Samilow. Update provides eDiscovery and legal staffing services throughout the United States. Samilow was employed as Chief Customer Officer and was responsible for developing new sales opportunities, managing client relationships, customer service for New York and New Jersey clients, and supervision of national sales. After working for Update, Inc. for over 20 years, Samilow’s employment ended.
Soon after his employment ended, Samilow started a new business, within 50 miles of Update’s New York headquarters, providing eDiscovery services similar to those provided by Update. Around the same time, Update was acquired by Driven, Inc. and Samilow proposed to Driven, Inc. that all eDiscovery clients he had been servicing personally be moved to his new business, but Driven rejected the proposal. Samilow then solicited a client he had worked with during his employment with Update. Update sued Samilow for breaching the non-competition and non-solicitation agreements. At the time of trial, Samilow was providing services for two of Update’s clients, performing services similar to those provided by Update, and had specifically diverted a large project from Update.
Enforceability of Non-Compete Agreements
Virginia utilizes a three-part test for determining the enforceability of non-compete and non-solicitation agreements. Under this test, a non-compete agreement must be (1) narrowly drawn to protect the employer’s legitimate business interest; (2) not unduly burdensome on the employee’s ability to earn a living; and (3) not against sound public policy. This requires consideration of the agreement’s “restriction in terms of function, geographic scope, and duration.”
Duration of Non-Compete
The court held that Update, Inc. had a legitimate interest in protecting itself from losing potential work to competitors through employees who complete against it using the business knowledge and contacts they acquired as employees. The non-compete and non-solicitation clauses served that purpose. The court found that the one-year duration of the clauses is reasonable, in light of the fact that Update “invests significant resources in its legal services clients and built relationships with many of them” through Samilow’s work on behalf of Update. The court determined that one-year allows Update a reasonable time to convince customers to remain with the company without interference from Samilow.
Geographic Scope of Non-Compete
Additionally, the court found the geographic scope of 50 miles from any office, branch office, or production facility reasonable. While, such a large geographic scope may not be appropriate in all circumstances, the court noted that “where, as here, the employee has company-wide knowledge about customers and sales practices” the Supreme Court of Virginia has upheld even less definite geographic restrictions. For example, the court previously upheld a non-compete clause that referred to “all territory” covered by the former employer, since the employee had company-wide knowledge that allowed him to compete nationally. Here, Samilow’s role required him to provide personal customer service to New York and New Jersey customers and was informed about customer information across Update’s national operations. Moreover, his new business had a “national practice.” In light of the company-wide knowledge standard, a 50-mile radius from any office was deemed reasonable, because it only covered the territories in which Update conducts business and in which Samilow conducted business.
Functional Scope of Non-Compete
The court also found that the functional scope of the clauses was reasonable, in light of Samilow’s former role at Update. The non-solicitation agreement prohibited solicitation of clients in geographic areas that would compete with Update and of former clients with whom Samilow worked. Additionally, it only bared solicitation for the purposes of diverting or taking away business from Update, Inc., and not mere contact with former or possible clients. The court found the agreement was reasonable because the scope was limited only to solicitation that “takes business away from the employer.” The non-compete agreement was further limited to prohibit only the types of services and activities that were included with Samilow’s job description in his job offer, and didn’t include services that fell outside the scope of his former role at Update.
What Does Update, Inc. Mean for Employers?
Courts determine the enforceability of a non-compete agreement on a case-by-case basis, based on what is reasonable and narrowly tailored in light of specific circumstances. Due to the fact intensive inquiry each case requires, the court’s finding in Update, Inc. can’t be interpreted as applicable to all non-competes across Virginia. However, it may be illustrative of how the court will view non-competes in similar employment scenarios. Where as here, an employee gains company-wide knowledge from a national company and information about clients nationally, the court was willing to enforce a geographic scope of 50 miles from any office nationally.
Ensuring that a non-compete is sufficiently “narrowly tailored” can make or break the agreement’s enforceability. Attorneys at General Counsel PC have experience walking the fine line of protecting a wide range of employer interests and remaining narrowly tailored. Call General Counsel PC at 703-556-0411 today to see how we can help you.