Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained. In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.
The Law In West Virginia
West Virginia courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as confidential information, customer lists or good will. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.
With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. West Virginia courts have not directly ruled on whether the offer of initial employment or a change in the terms and conditions of employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate. In general, if the non-competition is not an isolated provision and is contained in a contract in which there are mutual promises, it will not be ruled invalid for lack of consideration.
Reasonableness in Time and Geographic Scope
Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of employment or line of business being restricted. If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former employee’s ability to work.
Examples of non-compete agreements that West Virginia courts have found to be reasonable include:
- A 2-year restriction against an ophthalmologist from competing within 50 miles of any of the former employer’s offices.
- A 3-year, 30-mile restriction against a physician.
- A 3-year restriction against a ceramic chemicals salesperson, modified by the court from covering all of Canada and the portion of the U.S. east of the Mississippi River to just two Canadian provinces and only those U.S. states where the employee actually worked.
The courts have found restrictive covenants unreasonable or used the “blue pencil” rule to modify agreements in these situations:
- A 2-year, nationwide restriction where the employer failed to identify any legitimate interest to be protected.
- A 24-month restriction against a coal-industry equipment and supplies salesperson from competing within a 250-mile radius of West Virginia because the employer failed to identify any legitimate interest to be protected.
- A 2-year, 25-mile restriction against a bank trust officer because the employer failed to identify any legitimate interest to be protected.
Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.