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Update, Inc. v. Samilow

District Court, E.D. Virginia
311 F. Supp. 3d 784 (2018)
ELI5:

Rule of Law:

Under Virginia law, a non-compete agreement is enforceable if its restrictions on function, geography, and duration are narrowly tailored to protect an employer's legitimate business interest and are not unduly burdensome. The presence of an unenforceable 'blue pencil' clause does not, by itself, invalidate an otherwise reasonable restrictive covenant.


Facts:

  • Lawrence Samilow began working for Update, Inc. in 1995 and was promoted to Chief Customer Officer in 2016, a top sales executive position with national responsibilities.
  • In his role, Samilow had access to nationwide client information and was directly responsible for client relationships in New York and New Jersey.
  • On July 12, 2017, as part of a new compensation plan, Samilow signed an employment agreement with non-solicitation and non-compete clauses.
  • The non-solicitation clause barred him for one year post-employment from soliciting Update's customers within 50 miles of any company office or any customer with whom he had contact.
  • The non-compete clause barred him for one year from providing the same or similar services to a competitor within 50 miles of any company office.
  • Samilow resigned from Update, Inc. on January 10, 2018.
  • Shortly after resigning, Samilow formed a competing company, Samilow Harvest Group LLC, within 50 miles of Update's headquarters.
  • Samilow contacted at least one of Update's clients, Lowenstein Sandler LLP, to solicit business and began providing competing services to two other Update clients, Porzio and Teligent.

Procedural Posture:

  • Update, Inc. filed a verified complaint against its former employee, Lawrence Samilow, in the U.S. District Court for the Eastern District of Virginia, alleging breach of contract.
  • On the same day, Update, Inc. filed a motion for a preliminary injunction to enforce the non-compete and non-solicitation clauses of the employment agreement.
  • The court held an initial hearing and the parties submitted additional briefing and argument on the motion.

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Issue:

Under Virginia law, are non-compete and non-solicitation clauses that restrict a former high-level employee for one year within a fifty-mile radius of any company office from performing similar services or soliciting company clients sufficiently narrow to be enforceable?


Opinions:

Majority - T. S. Ellis, III

Yes, the non-compete and non-solicitation clauses are sufficiently narrow to be enforceable. The clauses are reasonable under Virginia's three-part test because they are narrowly drawn to protect the employer's legitimate business interests, are not unduly burdensome, and do not violate public policy. The one-year duration and fifty-mile geographic scope are reasonable given Samilow's high-level role and access to national customer information. Samilow's arguments regarding fatal ambiguity fail because undefined contract terms are given their ordinary meaning, and there is no reasonable alternative interpretation that would render the clauses overbroad. Furthermore, the inclusion of a legally inert 'blue pencil' clause does not invalidate the otherwise enforceable restrictive covenants.



Analysis:

This decision reinforces Virginia's strict but pragmatic approach to restrictive covenants, clarifying that courts will enforce reasonably tailored agreements while rejecting arguments that seek to invalidate them based on non-fatal ambiguities. It establishes persuasive authority that the mere inclusion of an unenforceable 'blue pencil' clause will not void an otherwise valid non-compete agreement, preventing a potential loophole for former employees. The case serves as a guide for drafting enforceable covenants in Virginia, emphasizing the importance of grounding restrictions in specific business needs and employee roles rather than relying on boilerplate definitions.

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