Indefinite Geographical Range Sacks Enforceability of Non-Compete Agreement

Business Insights

Indefinite Geographical Range Sacks Enforceability of Non-Compete Agreement

Jun 26, 2017 | Business Insights

Judge Liam O’Grady of the U.S. District Court, sitting in Alexandria, has found a non-competition agreement overbroad and unenforceable because its geographical component was defined by an irrelevant factor that resulted in a zone of prohibited competition that was indefinite in geographical range. The non-compete in NVR v. Nelson prevented the defendant / former employee from, among other things, providing competing services anywhere he had obtained Confidential Information during the 24 months immediately preceding his termination.

Nelson was employed as a Division Manager for a subdivision of NRV, a home developer and construction company. After leaving NRV, Nelson took a sales job with Siminini Homes, a competitor. Attempting to enforce the non-compete, counsel for NVR argued that it was enforceable because a narrow reading of the provision was necessarily implied, but the court noted that even under the most favorable interpretation, NVR was arguing for a limit that would prevent Nelson from competing in places where he hadn’t worked while employed by NVR. For example, while he worked in what NVR called the North District of Charlotte, North Carolina, NVR sought to exclude Nelson from working anywhere in the city of Charlotte. Moreover, by tying the geographical restriction to the locations from which Nelson had obtained Confidential Information, NRV had created an irrelevant and illogical test for this element of competitive protection.

Interestingly, Judge O’Grady found other components of the non-compete to be narrowly drawn and potentially enforceable. For example, the restriction on prohibited activities was carefully limited to NRV’s protectable interest and was therefore reasonable. However a non-compete that is overbroad in scope, duration or geography will not be enforced in Virginia. O’Grady denied NRV’s request for an injunction because the Plaintiff was “not likely to succeed on the merits.” In all likelihood, this preliminary ruling marks the practical end of the case.

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