Blue Ridge Anesthesia & Critical Care, Inc. v. Gidick

Supreme Court of Virginia
239 Va. 369, 6 Va. Law Rep. 1581, 389 S.E.2d 467 (1990)

ELI5:

Rule of Law:

A non-competition agreement is valid and enforceable if it is narrowly tailored to protect the employer's legitimate business interests, is not unduly harsh on the employee's ability to earn a living, and is not against public policy.

Facts:

Blue Ridge Anesthesia and Critical Care, Inc. (Blue Ridge) sold medical equipment in a highly competitive market across several mid-Atlantic states.
In 1985 and 1986, Blue Ridge hired Thomas Ward, Paul Faupel, and Robert Gidick.
Upon being hired, each man signed an employment contract containing a non-competition agreement.
The agreement forbade them, for three years after termination, from being employed by a competitor that rendered the same or similar services as Blue Ridge, but only within the territories they personally serviced.
During their employment, all three men had direct contact with Blue Ridge's customers in their sales and service roles.
In late 1987, Gidick was fired and Ward and Faupel resigned from Blue Ridge.
Shortly after their departures, Gidick formed a new company, Sarah Medical, Inc., which Ward and Faupel joined.
Sarah Medical, Inc. began selling the same type of anesthesia and critical care equipment in the former employees' Blue Ridge territories, directly competing with Blue Ridge.

Procedural Posture:

Blue Ridge Anesthesia and Critical Care, Inc. filed a lawsuit against former employees Gidick and Faupel in the state trial court, seeking damages and an injunction.
Blue Ridge later amended its complaint to add Ward and his new company, Sarah Medical, Inc., as defendants.
After a hearing, the trial court ruled that the non-competition agreements were invalid and entered a final judgment in favor of the defendants.
Blue Ridge (as appellant) appealed the trial court's judgment to the Supreme Court of Virginia.

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Issue:

Is a non-competition agreement that prohibits former employees from working for a direct competitor for three years within only the specific territories they previously serviced for their employer an unreasonable and unenforceable restraint of trade?

Opinions:

Majority - Justice Whiting

No. The non-competition agreement is a valid and enforceable restraint of trade because it is reasonable and narrowly tailored. The court applied a three-part test for reasonableness. First, the restraint is no greater than necessary to protect Blue Ridge's legitimate business interest in its customer relationships, which the employees developed on the company's behalf. Citing Paramount Termite Control, the court held that direct customer contact is a sufficient interest to protect, even without the presence of trade secrets. Second, the restraint is not unduly harsh on the employees because it is limited both geographically (to only the territories they serviced) and functionally (to only competing with Blue Ridge's specific business), allowing them to work in other roles within the medical industry. This distinguishes the case from overly broad covenants struck down in cases like Richardson v. Paxton Company. Third, the covenant is not contrary to public policy because the market is highly competitive, and this limited restriction does not create a monopoly or unreasonably restrain trade.

Analysis:

This decision reaffirms and clarifies Virginia's three-part reasonableness test for non-competition agreements. It establishes that protecting customer goodwill built by an employee is a legitimate business interest justifying a non-compete clause, separate from the need to protect confidential information or trade secrets. The case provides a clear example of how narrow tailoring in both geographic scope and function can make a covenant enforceable. It serves as a guide for drafting enforceable agreements by restricting them only to the employee's actual territory and specific competitive activities, rather than the employer's entire market or business scope.

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