Are non-compete agreements legal in Virginia?

Non-compete agreements are seen as a standard tool for protecting intangible assets. Under these agreements — which are a form of contract law — an employee (or someone selling a business) agrees not to compete against their former employer (or the people who have bought the business) for a certain period of time. Non-compete agreements are even recognized by the accountants as an intangible asset (although I’m sure there are interesting valuation issues).
However, it is unclear whether such agreements are effective or not. The classic counter-argument is Silicon Valley. As I noted in Intangible Asset Monetization, noncompete agreements are considered illegal under California’s Business and Professions Code Section 16600 as a restraint of commerce. Many have argued that the lack of such restrictions on the free flow of information and people is a hallmark of the Valley’s innovative culture. A number of other states also tend not to enforce non-compete agreements.
Now comes word that the Virginia Supreme Court will look at the issue. According to the Washington Post, the Court will be taking up two cases involving enforcement of non-compete agreements. Neither case (Home Paramount Pest Control Cos. Inc. v. Justin Shaffer, et al. and BB&T Insurance Services v. Thomas Rutherfoord Inc.) involves technology or intellectual property. They both involve another intangible asset: customer relationships. In both cases, the issue is one of “poaching” customers from their former employers.
The Virginia Supreme Court has ruled before on this issue, but apparently only on a case specific basis. We will have to see if these cases set a more standard interpretation of the law. In any event, it will be interesting to see whether any of the Virginia innovation policy players weigh in — and on which side.
In November 2011, the Virginia Supreme Court ruled that overly broad non-compete agreements could not be enforced (see story in the Washington Post and the Court’s written opinion).

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