Non-Compete Update

In November of 2011, the Virginia Supreme Court provided new guidance regarding the enforcement of Non-Compete Agreements.  Reversing prior precedent, the Court held that a restrictive covenant prohibiting employment “in any capacity” with a potential competitor was over-broad. As a result, Employers are advised to draft narrowly tailored provisions that only seek to limit an employee’s right to compete against the ex-employer in a capacity that is similar to the role performed for the prior employer.  See Home Paramount Pest Control Companies, Inc. v. Shaffer, et al., (Va. Sup. Ct. 2011).

This week the Court issues a new Non-Compete decision, Preferred Systems Solutions, Inc. v. GP Consulting, LLC, that addresses the calculation of damages following a breach of a Non-Compete agreement.   As affirmed by the Court, “When a noncompete clause is breached, the nonbreaching party is entitled to the benefit of the bargain: to put the party injured in the same position, as far as money can do it, as he would have been if the contract had been performed.”   Lost profits are available but must be proved with reasonable certainty, as opposed to speculation.  Essentially, the Court affirms that evidence of subsequent profits from a competitor that benefited from the breach of the Non-Compete may be sufficient to prove lost profits, provided “that the profits can be sufficiently tied to the injured party.”