In January 2020, Judge John Tran of the Fairfax County Circuit Court in Virginia held unenforceable non-competition and non-solicitation provisions in a government contractor’s consulting agreements entered into with independent contractors. The Metis Grp., Inc. v. Stephanie P. Allison, et al., Case No. CL 2019-10757. This case is a reminder that, particularly for Virginia employers, restrictive covenants should not be drafted as broader than necessary to protect an employer’s legitimate business interests.
The Metis Group engaged two defendant doctors in 2017 as independent contractors to help service a blanket purchase agreement (BPA) awarded to the Metis Group and others by the United States Army for the provision of psychological services. That BPA authorized the Army to purchase psychological services through task orders issued to any company awarded the BPA. As a condition of their engagement as independent contractors, the Metis Group required the doctors to agree in their consulting agreements not to perform any “professional psychological services” for the Army except through the Metis Group during the term of the consulting agreement (which was indefinite until terminated by either party upon written notice). Although the foregoing provision was referred to as a “non-solicitation” provision in the consulting agreement, the court found that it was effectively a non-competition provision and reviewed it as such.
The consulting agreements also prohibited the independent contractors from soliciting any Metis employee or contractor to, among other things, terminate their employment or other contractual relationship with Metis during the term of the consulting agreements and for two years thereafter.
By late 2019, both doctors had left the Metis Group and were performing professional psychological services for the Army, but through Preting, LLC, a competitor of the Metis Group. The Metis Group filed suit, alleging breach of contract against the doctors and tortious interference with contract by Preting. The defendants filed a plea–in-bar*, asserting that the restrictive covenants were unenforceable.
The Court held that the restrictive covenants were unenforceable because they were overbroad and contrary to public policy.
As for the non-competition provision, it prevented the doctors from providing any professional psychological services for the Army anywhere in the world, for any purpose, and whether or not the purpose competes with the Metis Group. As the Court noted, this would have prohibited the defendant doctors from practicing for the Army on a completely different project on the other side of the world, regardless of whether the Metis Group had ever performed work in that region or on a similar project. The court rejected Metis’ attempt to analogize its non-compete to that in Preferred Systems Solutions, Inc. v. GP Consulting, LLC, 732 S.E.2d 676 (Va. 2012), which it explained enforced a twelve-month post-termination employment non-compete which was “limited to the support of a particular program run under a particular government agency and limited to the same or similar type of information technology support offered by the employer.” By contrast, “[h]ere, the restriction . . . applies to the U.S. Army for whatever programs for which it may need support regardless of the program involved or place of performance.”
The Court also noted that preventing the defendant doctors from providing any professional psychological services to the Army anywhere in the world would have had the effect of helping to perpetuate a monopoly over those doctors’ in-demand services. Such an outcome would violate the public policy of Virginia. As a result, the non-compete was unenforceable on that basis as well.
Likewise, the Court found the non-solicitation of employees and contractors provision to be unenforceable, criticizing this provision for not being limited to solicitation of employees or independent contractors working under the same task order, and also restricting solicitations by non-competitors.
Interestingly, the Court offered some pointers for the Metis Group to implement in future non-competion and non-solicitation agreements involving analogous factual circumstances. Those tips included (i) narrowing the definition of covered clients for whom psychological services could not be provided from “the entire U.S. Army” to something more limited, like “the specific client serviced under the particular task order” (e.g., “the 1st Capabilities Integration Group at Fort Belvoir”); (ii) narrowing the applicable services from “all psychological services” to only those “same or similar” services provided under a task order; (iii) specifying a specific time upon which the non-compete expired, rather than leaving it indefinite, and specifically not continuing a noncompete against these independent contractors when the task order had ended; and (iv) as for the non-solicitation of employees or independent contractors, the court would have limited that to those employees or independent contractors “working under the same Task Order to work on behalf of another competitor under the same task order” and would not have extended this provision beyond the end of the task order.
Although the court offered these pointers, it declined to “blue pencil” or “reform” these provisions. Instead, consistent with the longstanding rule in Virginia which is not to fix an invalid restrictive covenant by revising it, the court struck them down altogether.
Thoughts for Employers
This case is a reminder that it is important for Virginia employers to be careful and thoughtful about the specific language used in their non-compete, non-solicit, and other restrictive covenant agreements, and to ensure that language is no broader than necessary to protect legitimate business interests. To be sure, this case involved independent contractors and not employees. Had the defendants been employees who were involved in more than just the discrete tasks set forth in their consulting agreements, it is possible the court would have tolerated a broader non-competition provision. Nonetheless, employers should take care to draft restrictive covenants in exacting language that cannot be hypothetically interpreted in an overbroad manner. For example, in Virginia and in a growing number of states, if a non-competition agreement could be used to prohibit someone from working in any capacity for another business, even if that capacity is not competitive against the prior employer or does not relate to the employee’s work for the prior employer, it may be vulnerable to challenge. Virginia employers should take this opportunity to review their restrictive covenants to evaluate their reasonableness and enforceability.
For more information about this case or about drafting, enforcing, or challenging restrictive covenants, please contact one of the authors of this post or a Hogan Lovells lawyer with whom you work.
* A plea-in-bar is a procedural defense that may be asserted under Virginia law. It “asserts a single issue, which if proved creates a bar to a plaintiff’s recovery.” Hawthorne v. VanMarter, 692 S.E.2d 226 (Va. 2010).