Virginia Business Law Update

For several years now, many practitioners that advise and/or draft non-competes for their business clients have stopped including language in non-compete provisions which prohibit a former employee from being an “owner” or “shareholder” in a competing business. Virginia Courts have routinely held that including language which prohibits a former employee from essentially owning stock in a competing business was overbroad and not necessary to protect an employer’s legitimate business interest. Therefore, such non-competes have regularly been invalidated.

Consistent with prior court opinions, a Virginia Beach Circuit Court recently invalidated a non-compete provision which prohibited a former employee from, inter alia, being an owner or shareholder in a competing business. The case, Patient First Richmond Medical Group, LLC v. Ameanthea Rica Blanco (Virginia Beach Circuit Court, Feb. 15, 2011), involved Defendant Blanco, a family nurse practitioner who was employed by Plaintiff Patient First. According to the allegations in the case, Blanco, while still working at Patient First, began formation of a competing healthcare practice which was to provide primary and urgent care treatment at reasonable or fixed fees during extended weekday and weekend hours without the need for an appointment.

Blanco also solicited two doctors from Patient First to come work with her at the new medical practice. After she resigned her position with Patient First, Blanco opened up the competing business within seven miles of her former place of employment. Patient First brought suit alleging that Blanco violated her employment agreement which contained non-competition and non-solicitation provisions.

The covenant not to compete prohibited Blanco from performing medical services of the type performed for Patient First (though the term “medical services” was not defined) for two years after her employment and within a seven-mile radius as an “agent, officer, director, member, partner, shareholder, independent contractor, owner, or employee” of the competing business. The Court found that the non-compete provision was overbroad because its provisions went beyond occupations and businesses that were in competition with Patient First. The Court reasoned that by barring Blanco from being a shareholder in a competing business, she would be barred from merely owning stock in a publically traded company, even if she were not providing medical services for the company and thus not competing with Patient First.

The Court also held that a number of the terms in the provision were not defined and left too much uncertainty as to which activities of the former employee would, or would not, be in violation of the covenant. Therefore, an employee would essentially have to guess at which conduct was prohibited. The Court held that in such cases, the non-compete was unenforceable as offending sound public policy, and sustained Blanco’s demurrer without leave for Patient First to amend.