Federal services contractors (Employers) often seek to minimize the potential harm to their competitive positions by restricting a departing employee’s ability to directly or indirectly compete for existing or follow-on business. Employers typically do so by requiring that employees sign non-competition agreements or otherwise impose restrictive covenants as a condition of employment. Although these agreements are enforceable if properly drafted, they are not favored because they often impermissibly infringe on an individual’s right to employment. Linville v. Servisoft of Virginia, Inc., 211 Va. 53, 174 S.E.2d 785 (1970). Because they are unfavored, they are strictly construed against the Employer by the courts of Virginia. See Richardson v. Paxton Co., 203 Va. 790, 127 S.E. 2d 113 (1962), thus enforcement can be expensive and is often frustrating.

A practical alternative to the hard-to-enforce and costly non-competition agreement is a simple restatement of the employee’s common law duty of loyalty. The restatement could be in the form of a statement in the employee handbook or a separate document acknowledged by the employee upon acceptance of employment that he or she, as a matter of law, owes a duty of loyalty to the Employer. The statement need not be complicated — just a simple and clear reminder that upon acceptance of employment, the employee is bound to give to his or her Employer the “highest duty of loyalty” during the time he or she is employed by the Employer. Community Counselling Service, Inc. v. Reilly, 317 F.2d 239, at 244 (4th Cir. 1963). The duty is simple and straightforward. It is a duty to act in the interest of the employer, not in self-interest or in the interest of a competitor. Unlike its aversion to employee non-competition agreements, the courts of Virginia have embraced and enforced this common law duty for several decades.

Until the employment relationship is finally severed … the employee must prefer the interests of his employer to his own. During such a period, he cannot solicit for himself future business which his employment requires him to solicit for his employer. … Above all, he should be candid with his employer and should withhold no information which would be useful to the employer in the protection and promotion of its interests.

The foregoing does not prevent an employee from taking necessary steps to prepare to leave his or her employment (Williams v. Dominion Technology Partners, L.L.C., 265 Va. 280, 576 S.E. 2d 752) but it would preclude collusion between the employee and a prospective employer that would be injurious to the business or competitive posture of the Employer. In this connection, it would preclude the employee from assembling the Employer’s data, business records, marketing information and like materials for the purpose of transporting the materials to a future employer for the benefit of the future employer (and presumably the individual). It is interesting that these are among the potential injuries most frequently mentioned by Employers when discussing their need for non-competition agreements. As an alternative to the difficult-to-enforce non-competition agreement, it seems that a simple reminder of the employee’s common law duty of loyalty might be as effective in deterring the potential harm perceived by many Employers.

For more information, contact MWL Partner Pat McMahon.