Can your non-compete clause prohibit services to a single client?
The Metis Group v. Allison (Fairfax Cir. Ct. Jan. 8, 2020)
The US Army enters into open-ended contracts with The Metis Group for psychological services. The Metis Group, in turn, enters into open-ended contracts with psychologists to provide the services as independent contractors. The independent contractor agreements contain two restrictive covenants: noncompete and non-solicitation clauses.
The non-compete clause prohibits the psychologists from providing “any professional psychological services” to the US Army, except on behalf of the Metis Group, during the contract. The non-solicitation clause prohibits the psychologists from soliciting the Metis Group’s employees and contractors during the contract, plus two years after its termination.
Are these restrictive covenants enforceable? And if not, can the court modify them to make them enforceable?
Fairfax Circuit Court: No and no.
Whether restrictive covenants are enforceable depends on three factors: their function, geographic scope, and duration. To be enforceable, they must be narrowly drawn to protect a legitimate business interest.
Here, though the covenants’ limited duration “nearly saves” them, their worldwide scope and monopolistic function kills them. And the court will not rewrite them to make them enforceable.
First, they’re overbroad. The non-compete clause operates as a worldwide ban on providing any psychological services to US Army “for any purpose, whether or not such purposes compete with the Metis Group’s business model.” Similarly, the non-solicitation clause prohibits solicitation “even if the reason for causing the employees or contractors to pursue opportunities elsewhere was wholly unrelated to the Metis Group’s business needs.”
Second, they “violate public policy because they are designed to perpetuate a monopoly although the work itself performed was limited to a particular government project.”
Finally, Virginia law prohibits courts from rewriting contracts to make them enforceable.
Bottom line: Don’t expect a court to enforce your non-compete clause, if it bans your employee from providing any services to your client. But if you tailor the clause to ban your employee from providing competing services to your client, you’ll have far better odds of having the court enforce it, as long as this prohibition lasts only for a reasonable time.