Present: Lacy, Keenan, Koontz, Kinser, Lemons, and Agee, JJ.,
and Stephenson, S.J.
OMNIPLEX WORLD SERVICES CORPORATION
v. Record No. 042287 OPINION BY JUSTICE ELIZABETH B. LACY
September 16, 2005
US INVESTIGATIONS SERVICES,
INC., ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Jonathan C. Thacher, Judge
In this appeal, we consider whether the provisions of a
non-competition contract are overbroad and unenforceable.
FACTS AND PROCEEDINGS
Omniplex World Services Corporation (Omniplex) is a
highly specialized employment agency that provides a variety
of security services to government and private sector
customers. In August 2003, Omniplex prevailed in its bid to
provide staffing for a government agency, referred to as a
"Sensitive Government Customer" or "SGC," in a project
entitled "Project Eagle." Staffing of this project required
that personnel have a "Top-Secret" security clearance
validated by the SGC, regardless of the function performed.
At the time Omniplex won the bid, Kathleen M. Schaffer
was working on Project Eagle as an employee of MVM, Inc.,
another staffing company. Upon learning that MVM no longer
had the contract to staff Project Eagle, Schaffer sent out
applications for employment to various staffing agencies,
including The Smith Corporation. Before receiving a response
from The Smith Corporation, Schaffer was offered continued
employment at Project Eagle by Omniplex. On August 26, 2003,
Schaffer signed a one-year employment agreement with Omniplex.
The agreement provided for a $2,000 bonus and included a non-
competition provision. That provision stated in pertinent
part:
Employee hereby covenants and agrees that,
immediately following any termination of
employment from OMNIPLEX that occurs before
the expiration of the Term, . . . Employee
shall not for the remainder of the Term (i)
accept employment, become employed by, or
perform any services for OMNIPLEX's Customer
for whom Employee provided services or for any
other employer in a position supporting
OMNIPLEX's Customer, if the employment or
engagement requires Employee to possess the
same level of security clearance Employee
relied on during his employment with OMNIPLEX,
. . . .
Schaffer worked for Omniplex in general administrative
security support, monitoring alarms and intrusion detection
systems at the SGC's general headquarters, an overt location.
On October 23, 2003, The Smith Corporation responded to
Schaffer's earlier employment application and offered her a
position as an administrative assistant for the SGC at a
covert location. This position required her to arrange
travel, including obtaining visas and passports and offered a
higher hourly wage than Schaffer was currently earning.
2
Schaffer accepted the offer and, on November 4, 2003, resigned
from Omniplex and returned the $2,000 bonus.
Omniplex filed a three-count motion for judgment claiming
that Schaffer breached her employment contract, that The Smith
Company and U.S. Investigation Services, Inc., the parent
company of The Smith Company (collectively "USIS"), tortiously
interfered with Schaffer's employment contract, and that
Schaffer and USIS engaged in a conspiracy to injure Omniplex's
business in violation of Code § 18.2-499. Omniplex sought
injunctive relief and $1,350,000 in damages. The trial court
denied Omniplex's motion for a temporary injunction.
Following an ore tenus hearing, the trial court struck
Omniplex's evidence, concluding that the non-compete provision
of Schaffer's employment agreement was overbroad. Based on
this conclusion, the trial court entered an order dismissing
all three counts of Omniplex's motion for judgment. We
awarded Omniplex an appeal.
DISCUSSION
The standards we apply in reviewing a covenant not to
compete are well established. A non-competition agreement
between an employer and an employee will be enforced if the
contract is narrowly drawn to protect the employer's
legitimate business interest, is not unduly burdensome on the
employee's ability to earn a living, and is not against public
3
policy. Modern Env'ts, Inc. v. Stinnett, 263 Va. 491, 493,
561 S.E.2d 694, 695 (2002); Simmons v. Miller, 261 Va. 561,
580-81, 544 S.E.2d 666, 678 (2001). Because such restrictive
covenants are disfavored restraints on trade, the employer
bears the burden of proof and any ambiguities in the contract
will be construed in favor of the employee. Id. at 581, 544
S.E.2d at 678. Each non-competition agreement must be
evaluated on its own merits, balancing the provisions of the
contract with the circumstances of the businesses and
employees involved. See Modern Env'ts, 263 Va. at 494-95, 561
S.E.2d at 696. Whether the covenant not to compete is
enforceable is a question of law which we review de novo.
Simmons, 261 Va. at 581, 544 S.E.2d at 678; Motion Control
Sys., Inc. v. East, 262 Va. 33, 37, 546 S.E.2d 424, 426
(2001).
These standards have been developed over the years to
strike a balance between an employee’s right to secure gainful
employment and the employer’s legitimate interest in
protection from competition by a former employee based on the
employee's ability to use information or other elements
associated with the employee's former employment. Worrie v.
Boze, 191 Va. 916, 927-28, 62 S.E.2d 876, 882 (1951). By its
very name, a covenant not to compete is an agreement to
prevent an employee from engaging in activities that actually
4
or potentially compete with the employee's former employer.
Thus, covenants not to compete have been upheld only when
employees are prohibited from competing directly with the
former employer or through employment with a direct
competitor. Compare Motion Control Sys., 262 Va. at 37-38,
546 S.E.2d at 426 (covenant not to compete restricting
employment with motor manufacturers that did not manufacture
motors similar to employer overbroad because covenant did not
protect against competition), and Richardson v. Paxton Co.,
203 Va. 790, 795, 127 S.E.2d 113, 117 (1962)(covenant not to
compete that restricted former employee, who sold specific
supplies and services, from working for any employer involved
with any kind of supplies, equipment, or services in the same
industry overbroad because covenant encompassed business for
which employer did not compete), with Blue Ridge Anesthesia
and Critical Care, Inc. v. Gidick, 239 Va. 369, 373, 389
S.E.2d 467, 469 (1990)(non-competition agreement reasonable
because restriction protected against direct competition by
prohibiting former employees from employment with another
company in a position selling similar medical equipment to
that sold by former employer), and Roanoke Eng'g Sales Co. v.
Rosenbaum, 223 Va. 548, 553, 290 S.E.2d 882, 885 (1982)(non-
competition covenant reasonable because employment restriction
limited to activities similar to business conducted by former
5
employer). The restriction in this case is not limited to
positions competitive with Omniplex.
Under the provision at issue, Schaffer is prohibited from
performing "any services . . . for any other employer in a
position supporting OMNIPLEX's Customer."* (Emphasis added.)
This provision precludes Schaffer from working for any
business that provides support of any kind to the SGC, not
only security staffing businesses that were in competition
with Omniplex. Thus, for example, the non-competition
agreement precludes Schaffer from working as a delivery person
for a vendor which delivers materials to the SGC if such
security clearance was required to enter an SGC installation
even though the vendor was not a staffing service competing
with Omniplex. Because the prohibition in this non-
competition provision is not limited to employment that would
be in competition with Omniplex, the covenant is overbroad and
unenforceable. Motion Control Sys., 262 Va. at 37-38, 546
S.E.2d at 426; Richardson, 203 Va. at 795, 127 S.E.2d at 117.
Accordingly, for the reasons stated, we will affirm the
judgment of the trial court.
Affirmed.
JUSTICE AGEE, with whom JUSTICE KEENAN and JUSTICE KINSER
join, dissenting.
* It is uncontested that the "customer" referred to in the
non-competition provision is the SGC.
6
The trial court found that the restrictive covenant at
issue in this case was overly broad because it had no
geographic specification, in effect a worldwide covenant.1 Not
commenting on the trial court's rationale, the majority holds
that the covenant is unreasonable because it does not limit
the prohibited positions to those of direct competition.
Under the specific facts of this case, I cannot agree with
either view and therefore respectfully dissent.
The majority cites Motion Control Systems, Inc. v. East,
262 Va. 33, 37-38, 546 S.E.2d 424, 426 (2001), and Richardson
v. Paxton Co., 203 Va. 790, 795, 127 S.E.2d 113, 117 (1962),
to support its holding that the noncompete provision is
overbroad because the contract restriction is not limited to
employment that would be in competition with Omniplex.
Neither of these cases, or any others, however, establish a
rule that noncompete provisions are per se unenforceable if
they fail to limit the restriction to those positions in
direct competition with the former employer. Rather, in each
case we held that under the facts of that case, the
restrictive covenant at issue "imposed restraints that
1
The noncompetition agreement also contains a provision prohibiting Schaffer from
providing "security or security support services . . . within a fifty (50) mile radius of the site
or location which Employee primarily provided services during . . . Omniplex employment."
Apparently, the trial court did not rule on the applicability of this provision and it is not before
us in this appeal.
7
exceeded those necessary to protect [the former employer's]
legitimate business interests." Motion Control, 262 Va. at
38, 546 S.E.2d at 426. See also Richardson, 203 Va. at 795,
127 S.E.2d at 117 ("Such restraint is unreasonable in that it
is greater than is necessary to protect Paxton in his
legitimate business interest, and it is unreasonable from the
standpoint of Richardson because it is unduly harsh on him in
curtailing his legitimate efforts to earn a livelihood. Thus
it cannot be enforced.").
In a more recent case, Modern Environments, Inc. v.
Stinnett, 263 Va. 491, 494-95, 561 S.E.2d 694, 695-96 (2002),
we affirmed our view that a court may not determine the
enforceability of a restrictive covenant which prohibits a
former employee from working for a competitor in any capacity,
by the language of the covenant alone. Surveying precedent,
we noted that we have "not limit[ed] [our] review to
considering whether the restrictive covenants were facially
reasonable." Id. at 494, 561 S.E.2d at 696. Rather, we have
"examined the legitimate, protectable interests of the
employer, the nature of the former and subsequent employment
of the employee . . . and the nature of the restraint in light
of all the circumstances of the case." Id. at 494-95, 561
S.E.2d at 696.
8
These considerations form the basis of the three-part
test we use to determine the validity of restrictive
covenants:
(1) Is the restraint, from the standpoint of the
employer, reasonable in the sense that it is no
greater than necessary to protect the employer in
some legitimate business interest? (2) From the
standpoint of the employee, is the restraint
reasonable in the sense that it is not unduly
harsh and oppressive in curtailing his legitimate
efforts to earn a livelihood? (3) Is the
restraint reasonable from the standpoint of a
sound public policy?
Simmons v. Miller, 261 Va. 561, 580-81, 544 S.E.2d 666, 678
(2001). In examining the reasonableness of the restrictive
covenant with regard to the interests of the employer,
employee, and the public at large, we pay particular attention
to the duration, function, and geographic reach of the
covenant. Id. at 581, 544 S.E.2d at 678. We consider the
reasonableness of the covenant on the facts of each particular
case. Paramount Termite Control Co. v. Rector, 238 Va. 171,
174, 380 S.E.2d 922, 924 (1989). The employer seeking to
enforce the restrictive covenant bears the burden of proving
that the restraint is reasonable in light of those facts.
Simmons, 261 Va. at 581, 544 S.E.2d at 678. We review the
record de novo to determine whether Omniplex has met its
burden. Id.
9
Omniplex argues that it has a legitimate business
interest in retaining employees who hold the necessary top-
level security clearance during the first year of its contract
with the SGC. Neither the trial court nor the majority found
that Omniplex' stated interest was not a legitimate business
interest, but Schaffer argues on brief that retaining
employees is not a legitimate business interest because this
Court has never recognized it as such. Such an argument
misinterprets the applicable law in this case.
Unlike courts of other jurisdictions, we have never
established discrete categories of legitimate business
interests which may be the subject of a restrictive covenant.
Instead, we have placed the burden on the employer to show
that the restrictive covenant is designed to protect an
important business interest particular to that employer. See
Modern Environments, 263 Va. at 495, 561 S.E.2d at 696
(conclusory statement that restrictive covenant protects a
legitimate business interest, without explaining that
interest, is insufficient). Even so, we have recognized
2
Omniplex' stated business interest in an analogous context.
See Therapy Services v. Crystal City Nursing Center, 239 Va.
2
See generally Richardson v. Paxton Co., 203 Va. 790, 792, 127 S.E.2d 113, 115
(1962) (finding noncompete agreement to be unreasonably restrictive to protect employer's
business interest, but not disputing employer's asserted business interest in retaining
salespeople).
10
385, 388, 389 S.E.2d 710, 711-12 (1990) (recognizing a
company's "legitimate interest in protecting its ability to
maintain professional personnel in its employ, thus enabling
it to provide the services required under its contracts").3
The record in this case reflects that Omniplex has shown it
has a legitimate business interest in retaining "cleared"
employees like Schaffer during the first year of the Project
Eagle contract.
At trial, Michael M. Wines, Omniplex' vice president of
security services, explained that as part of the SGC's bidding
process, a staffing company must describe the steps that it
will take to maintain a stable workforce and ensure that the
project will be adequately staffed. Once awarded the Project
Eagle contract, Omniplex was required to report staffing
levels and plans for future staffing to the SGC on a regular
basis. In the past, the SGC has cancelled contracts when a
company could no longer provide sufficient "cleared" staff.
Wines described the impact on Omniplex when a cleared
employee departs suddenly:
[Y]ou have an employee that has institutional
knowledge, has the clearance, has goodwill with the
client, the client has a comfort level with them
. . . .
3
The noncompete provision in Therapy Services was contained in a contract between
the staffing company and the client and was not a part of an employment contract. See 239
Va. at 387, 389 S.E.2d at 711.
11
But . . . it also creates . . . a serious
concern about contract performance . . .
[especially] in the first year [of a contract]. As
a first-year, a new contractor [is] trying to
establish goodwill with the client, . . . a stable
workforce, [and] ensure the client that they made
the right selection.
. . . .
[W]hen [our employee is] working for us today, and
the very next day they're [sic] working for one of
our competitors in the same facility, supporting the
same client[,] [t]he client starts to question our
ability to retain employees.
Wines noted that while turnover is inevitable in any company,
Omniplex has particular concerns about other staffing
companies "poaching"4 employees with top security clearances:
"[M]any times our competitors are willing to pay additional
funds for an employee [who is] not qualified for a position
just because the employee has a clearance." He testified that
on a former contract, a competitor of Omniplex "poached five
[out of eight] people in one day." Wines noted that if a
similar situation occurred on Project Eagle, "the only way
[Omniplex] would be able to meet [its] contractual
4
Wines distinguished the problem of "poaching" from the industry practice of hiring
the incumbent workforce at a site when a staffing company takes over a contract from an
outgoing security firm. When Omniplex was awarded the Project Eagle contract, it offered
higher salaries and benefits to the incumbent workforce at the Project Eagle site. Wines
testified that this practice is necessary as the incoming staffing company is required to assume
contractual duties almost immediately, and the company is not allowed to submit an employee
for a security clearance until after that company is awarded the contract. Because the security
clearance process takes an average of 12 months, it is unlikely that the contractor could
provide enough cleared staff for the crucial first year of the contract without hiring the
incumbent employees.
12
requirements would be forcing our existing staff to work
overtime."
USIS has the same concerns. Peter F. Waldorf, an
operations director for USIS, agreed that it is "very
important for [USIS] to provide an adequate amount of
cleared staff to [its] government customers." Waldorf
also agreed that adequate staffing was a particularly
important concern to the SGC, and that a government
contractor such as USIS must maintain adequate staffing
levels to be viable. Anthony Gallo, president of USIS
professional services division, testified that in order
to protect USIS' business interests, Schaffer was
required to sign a noncompete5 agreement similar to that
which she signed with Omniplex upon accepting employment.6
Gallo testified this was necessary "to demonstrate to
your customers that your company has the capacity to
maintain a stable workforce . . . ."
5
The USIS noncompete provision reads in pertinent part:
Employee agrees that during his or her term of employment and for a
six (6) month period commencing on the last day of Employee's
employment with Company, whether terminated for cause or otherwise,
he or she may not without Company permission, directly or indirectly,
(a) [provide] services similar to those provided by the Company to
any Customer; or
(b) assist any . . . enterprise in bidding, soliciting or procuring
services similar to those provided by the Company to its Customers;
....
6
Significantly, the USIS covenant is longer in duration than that of Omniplex, and
prohibits employment with any entity serviced by USIS during the former employee's term of
employment.
13
In order to protect its interest in maintaining a
stable, qualified workforce during the crucial first year
of the Project Eagle contract, Omniplex required each of
its employees to sign a restrictive covenant prohibiting
employment with any firm which supports the SGC, within a
year from the first day of service with Omniplex, but
only if such employment requires the same security
clearance the SGC required. Omniplex argues that this
restrictive covenant is narrowly tailored to protect its
legitimate business interest during the contract's first
year. I agree with Omniplex and would find that the
restrictive covenant, as drawn in this case, is a
reasonable protection of Omniplex' legitimate business
interest to maintain a sufficient number of "cleared"
employees during Project Eagle's first year.
Omniplex' success on Project Eagle is dependent upon
its ability to retain "cleared" employees during the
first year of the contract. The restrictive covenant
commits an Omniplex employee only during the first year
of employment and places no restrictions on an employee
who leaves to take another position after that time. For
one year after beginning employment with Omniplex,
Schaffer was prohibited from working anywhere in the
world for any independent contractor of the SGC if the
14
new position required her SGC security clearance. In
this case, the restriction on Schaffer would last only
nine and one-half months.
This Court has noted that
[i]n determining the reasonableness and
enforceability of restrictive covenants, trial
courts must not consider function, geographical
scope, and duration as three separate and distinct
issues. Rather, these limitations must be
considered together.
Simmons, 261 Va. at 581, 544 S.E.2d at 678. In my view,
the trial court and the majority place undue and
exaggerated emphasis on the covenant's lack of geographic
restriction and lack of prohibited competitive
activities, respectively. Both failed to give due weight
to the other narrow aspects of the restriction. As noted
above, the covenant applies only to employment with
entities servicing the SGC in positions which require
Schaffer's top-level security clearance. Schaffer is
otherwise free to work for any other employer at any
location in the world. She can work for any competitor
of Omniplex, even one providing services to the SGC, so
long as a lower security clearance is used (subject to
other provisions of the noncompetition agreement). The
record contained no evidence that Schaffer's work skills
could only be used at the SGC as opposed to other
15
potential employers. Considering all these factors in
context, the fact that the restrictive covenant does not
contain a geographic limitation or a list of prohibited
competitive positions does not make it overly broad.
The majority holds the noncompetition agreement is
overbroad because it bars Schaffer from "perform[ing] any
services for OMNIPLEX' customer." Such a restriction, the
majority argues, would "preclude[] Schaffer from working as a
delivery person for a vendor which delivers materials to the
SGC if such security clearance was required to enter an SGC
installation even though the vendor was not a staffing service
competing with Omniplex." Even if the majority's analysis of
the restrictive covenant is correct on this point, the
possible prohibition on Schaffer's employment as an SGC
delivery person is not overly broad.
Omniplex has a well-defined, vital business interest in
prohibiting Schaffer from seeking other employment using her
particular security clearance. Without the ability to enforce
the narrowly drawn restriction, Omniplex' legitimate business
interest may be vitiated. While it seems unlikely that
Domino's Pizza or UPS would need a top level security
clearance employee to deliver a pizza or a package to an SGC
site, I would not find a restrictive covenant with such an
effect to be overly broad under the specific facts of this
16
case. As noted above, the restrictive covenant at issue is
limited to only one entity, the SGC, and only in the first
year of the contractual relationship. That leaves the rest of
the world's entities for the pizza or package delivery person
to service. Considering all the circumstances, the covenant
is reasonable.
In addition, this Court has upheld restrictive covenants
which lack a geographic restriction. In Foti v. Cook, 220 Va.
800, 805-07, 263 S.E.2d 430, 433-34 (1980), we affirmed the
trial court's decision to enforce a restrictive covenant which
prohibited a former accounting firm partner from performing
services for any client of the partnership. The covenant in
that case did not contain a geographic restriction, but rather
centered on contact with former clients. Id. at 807, 263
S.E.2d at 434. Like the enforceable restrictive covenant in
Foti, Schaffer's noncompete agreement is client-specific,
rather than geographically based. Schaffer's contract is
much more narrowly drawn than the one in Foti, because the
restrictive limit goes to only one Omniplex client and not to
any others.
Similarly in Advanced Marine Enterprises v. PRC Inc., 256
Va. 106, 111, 127, 501 S.E.2d 148, 151, 160 (1998), we upheld
a noncompete agreement which prohibited a former employee from
competing with the employer within 50 miles of any of the
17
employer's offices. We noted that even though the employer
had 300 offices worldwide, the geographic restriction was
reasonable because other elements of the restriction were more
narrowly tailored. Id. at 119, 501 S.E.2d at 155.
In addition to considering the other narrowly tailored
aspects of the restrictive covenant, I believe that our fact-
specific inquiry requires us to consider the nature of the
employer's business in determining whether any geographic
restriction is necessary. I agree with the United States
Court of Appeals for the Fourth Circuit that
[w]ith respect to the territory to which the
restriction should apply, the rule has always been
that it might extend to the limits wherein the
plaintiff's trade would be likely to go. The changes
which have marked the course of judicial decisions
in modern times seem to consist in conforming the
application of the rule to the constant development
of the facilities of commerce and the enlargement of
the avenues of trade.
National Homes Corp. v. Lester Indus., Inc., 293 F. Supp.
1025, 1034 (W.D. Va. 1968) (citation omitted), aff'd in part
and rev'd in part, 404 F.2d 225 (4th Cir. 1968). See, e.g.,
West Publ'g Corp. v. Stanley, No. 03-5832, 2004 U.S. Dist.
LEXIS 448, at *32 (D. Minn. 2004) (restrictive covenant
lacking geographic limitation was "reasonable in light of the
national, and . . . international, nature of internet
business").
18
Omniplex and its competitors service government agencies
both nationally and overseas. A particular government client
may have contracts with multiple staffing companies for its
various locations. A security clearance specific to such a
client is a valuable asset and renders an employee vulnerable
to "poaching" by a competitor, who also has a contract with
that government client. Without its worldwide scope as to the
single client, SGC, the restrictive covenant could not protect
Omniplex' interest in protecting its workforce during the
crucial first year on Project Eagle.
Likewise, limiting those positions an employee can take
after leaving Omniplex does not sufficiently protect Omniplex'
interest in maintaining adequate staffing. If Omniplex
restricted Schaffer's subsequent employment by the tasks she
performed, she would have no incentive not to use her valuable
SGC specific security clearance to obtain other employment
serving the SGC.
The restrictive covenant at issue in this case, when
viewed in the context of the facts of this record, meets the
three-part test for the validity of such covenants
particularly for purposes of sufficiency on a motion to strike
the evidence. The contractual restraint has been amply
demonstrated to be reasonable, even essential, to protect
Omniplex' contractual interests with the SGC. The restraint
19
is no greater than necessary to protect that interest,
particularly when drawn for such a short period of time and
without restriction on Schaffer's freedom to seek employment
providing services to any employer in the world except one
working at the SGC and requiring her level of security
clearance.
For these same reasons, it cannot be said the restrictive
covenant is unduly harsh in limiting Schaffer's ability to
earn a livelihood. Finally, the restraint is reasonable from
a public policy standpoint. When drawn as narrowly as in this
case, the restrictive covenant safeguards the ability in
unique economic circumstances for an employer to maintain the
contracts that enable it to be a viable entity, particularly
in the areas of national security and defense. Accordingly, I
would reverse the judgment of the trial court and therefore
respectfully dissent from the majority opinion.
20