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Motion Control Systems, Inc. v. East

Supreme Court of Virginia
546 S.E.2d 424, 2001 Va. LEXIS 72, 262 Va. 33 (2001)
ELI5:

Rule of Law:

A covenant not to compete is unenforceable as overbroad if it prohibits an employee from working in a broad category of businesses, rather than being narrowly tailored to restrict employment only with direct competitors that engage in business activities similar to the employer's specific enterprise.


Facts:

  • Motion Control Systems, Inc. (MCS) designs and manufactures custom, high-performance brushless motors and related electronic controls.
  • Gregory C. East worked for MCS, eventually becoming the Quality and Reliability Engineering Manager with access to sensitive company information, including customer lists and product development.
  • In 1997, MCS required East to sign a non-compete agreement that, for two years and within a 100-mile radius, barred him from involvement with any 'business similar to the type of business conducted by the Company.'
  • After negotiation, the agreement's final version defined a 'similar business' as 'any business that designs, manufactures, sells or distributes motors, motor drives or motor controls.'
  • East signed the modified agreement.
  • East resigned from MCS in December 1998.
  • In August 1999, East accepted a position as a supervisor at Litton Systems, Inc., a company whose Blacksburg facility also produced brushless motors.

Procedural Posture:

  • Motion Control Systems, Inc. (MCS) sued its former employee, Gregory C. East, in a Virginia trial court to enforce a covenant not to compete.
  • The trial court held that the covenant not to compete was overbroad and therefore unenforceable.
  • The trial court, however, entered an injunction against East under the Uniform Trade Secrets Act, prohibiting him from disclosing any of MCS's confidential information.
  • MCS appealed the trial court's ruling on the unenforceability of the covenant to the Supreme Court of Virginia.
  • East filed a cross-appeal challenging the trial court's entry of the injunction.

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Issue:

Is a covenant not to compete unenforceable as overbroad if it functionally prohibits an employee from working for any business in a general field, such as motor sales, rather than being limited to businesses that are direct competitors of the employer's more specialized business?


Opinions:

Majority - Justice Lacy

Yes. A covenant not to compete is unenforceable as overbroad if its restrictions are greater than necessary to protect the employer's legitimate business interests. Covenants not to compete are restraints on trade, are disfavored, and must be strictly construed in favor of the employee. The employer bears the burden of proving the restraint is reasonable. Here, the covenant's definition of a 'similar business' as 'any business that designs, manufactures, sells or distributes motors' is far too broad. It would prohibit East from working in a wide range of enterprises unrelated to MCS's specialized business of custom, high-performance brushless motors, such as a company that merely sells standard motors. Because the prohibition extends beyond businesses that are actually similar to MCS, the restraint is greater than necessary to protect MCS's interests and is therefore unenforceable.



Analysis:

This decision underscores the Virginia judiciary's strict construction of non-compete agreements. It serves as a clear warning to employers that broad, catch-all definitions of what constitutes a 'competitor' will likely render a covenant unenforceable. The court will not rewrite or 'blue-pencil' an overbroad provision to make it reasonable; instead, it will invalidate the entire covenant. This precedent forces employers to draft non-compete clauses with high precision, tailoring them specifically to the actual, specialized business activities they seek to protect, rather than attempting to restrict former employees from an entire industry.

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