Motion Control Systems, Inc. v. East, Record No. 001940.
| Decision Date | 08 June 2001 |
| Docket Number | Record No. 001940. |
| Citation | 546 S.E.2d 424,262 Va. 33 |
| Parties | MOTION CONTROL SYSTEMS, INC., v. Gregory C. EAST. |
| Court | Virginia Supreme Court |
Michael F. Urbanski (Frank K. Friedman; James R. Creekmore; Woods, Rogers & Hazlegrove, on briefs), Roanoke, for appellant.
Claude M. Lauck (Glenn, Feldmann, Darby & Goodlatte, on brief), Roanoke, for appellee.
Present: All the Justices.
Motion Control Systems, Inc. (MCS) appeals a decision of the trial court holding that a covenant not to compete executed by its former employee, Gregory C. East, was over-broad and therefore unenforceable. East assigns as cross-error the trial court's entry of an injunction under the Uniform Trade Secrets Act, Code §§ 59.1-336 through 343, permanently enjoining him from "disclosing to anyone any confidential, proprietary or trade secret information of Motion Control." We will affirm the trial court's determination that the covenant not to compete was over-broad and unenforceable, but because we conclude that the evidence is insufficient to support the imposition of the injunction, we will reverse that part of the trial court's judgment.
MCS engages in the business of designing and manufacturing high performance drive systems, including brushless motors as well as amplifiers and electronic controls for the motors. Each motor is custom made. MCS protects its proprietary information regarding its products in a number of ways such as keeping customer lists confidential, restricting product application information, and removing identifying marks from component parts.
East began working for MCS as a test technician in 1991. He received numerous promotions and in 1998 was the Quality and Reliability Engineering Manager. In this position, he had access to customer lists, customer specifications, and was involved in new product development. He was considered an integral member of the MCS management team.
In 1997, MCS asked its employees to sign a "Confidentiality and Noncompetition Agreement" (the Agreement). As presented to East, Paragraph 3(b) of the Agreement provided:
Therefore, the Employee agrees that for a period of two years after termination of their employment with the Company in any manner whether with or without cause, the Employee will not within a one hundred (100) mile radius of the Company's principal office in Dublin, Virginia, directly or indirectly, own, manage, operate, control, be employed by, participate in, or be associated in any manner with the ownership, management, operation or control of any business similar to the type of business conducted by the Company at the time of the termination of this Agreement. The term "business similar to the type of business conducted by the Company" includes, but is not limited to any business that designs, manufactures, sells or distributes motors, motor drives or motor controls.
East was concerned that the final sentence of this provision could apply to prohibit work in areas beyond the scope of MCS's business. Upon advice of counsel, East suggested the deletion of the phrase "but is not limited to." MCS accepted East's proposed changes and added the word "currently," changing the final sentence of paragraph 3(b) to read:
The term "business similar to the type of business conducted by the Company" currently includes any business that designs, manufactur[es], sells or distributes motors, motor drives or motor controls.
East then signed the Agreement.
East resigned from MCS in December 1998 and was hired by Litton Systems, Inc. (Litton) in August 1999 as a supervisor in Litton's slip ring manufacturing operation at its Blacksburg plant. Litton makes brushless motors at its Blacksburg facility.
The trial court found that MCS and Litton made some of the same products and that MCS reasonably could be concerned that Litton was "going to get into the production of [MCS's] product and put [MCS] out of business." Nevertheless, the trial court concluded that the covenant not to compete was unenforceable because the final sentence of paragraph 3(b) "imposed additional restraints which are far greater than reasonably necessary to protect [MCS] in [its] legitimate business enterprise." The trial court did, however, enjoin East from "disclosing to anyone any confidential, proprietary or trade secret information of Motion Control," even though the trial court found that Litton had not attempted to gain any trade secrets and East had not "made any disclosure of any trade secret or any other like fact."
Covenants not to compete are restraints on trade and accordingly are not favored. The validity of a covenant not to compete is determined by applying not only the general principles of contract construction, but also legal principles specifically applicable to such covenants. The employer bears the burden to show that the restraint is reasonable and no greater than necessary to protect the employer's legitimate business interests. The restraint may not be unduly harsh or oppressive in...
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