Legal Question in Business Law in Virginia

Re: non compete clauses in contracts

The answer is a definite MAYBE.

Non competes are enforceable, but the courts are hostile to them, to the extent that they prevent someone from earning a living.

A noncompete must be limited in time, limited in geography, and limited in substance (scope).

If it is overly-broad and not reasonably related to legitimate needs, then it will not be enforced.

It will be enforced the more it focuses on a legitimate interest.

For example, you open a new business and steal the customers from your old business that you just sold, rendering the business that you sold less valuable. That is a clear-cut violation, and will get someone in real trouble. The more a buyer can show that the seller took his old customers with him, or used proprietary information, the more serious and harshly the court will treat the violator.

If you started a new business and DID NOT take any of the old business' customers you would be less likely to be found to be competing. If you "compete" in a different market (geographically), it is less likely to violate anything. If you wait a decent amount of time, it is likely to be okay (i.e., the customers are not as likely to jump ship to come to you, any information you have is likely to grow old, etc.)

And note that in any lawsuit or legal claim, the complaining party must show that they lost money.

So if I sold the ABC Company to a new investor and opened the DEF Company next door, but the ABC Company NEVER LOST ANY CUSTOMERS (maybe the customers liked the new guy better than me, I am a grouch), then

(1) I have violated the non-compete

(2) I owe the ABC Company $0.00 because their losses equal $0.00. (They did not lose any customers.)

If it were possible to show tha the ABC company lost POSSIBLE customers, they could sue for that, but that is very hard to prove.

However, it could hurt my rights under the contract and it could justify an injunction.

Could hiring the old owner negate it? Hmmm.. Well it would certainly muddy the waters, but it would not automatically cancel the contract. Certainly WHILE working for the new owner, the old owner could not possibly be "competing." But after he left? It might still be a violation after working for the new owner, unless something was signed that changed that.