Omniplex World Services v. U.S. Inv.

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