By: Adam Konstas, Esquire and Alex Kelly, Esquire
Non-compete agreements are traditionally disfavored as unlawful restraints on an employee’s ability to seek future employment. However, courts in Maryland, Virginia, and Washington, D.C. have long recognized that these agreements are important in order for businesses to protect their commercial viability.[1] Having a valid non-compete agreement thus becomes a line-drawing exercise, forcing companies, employees, and ultimately the courts to determine when a non-compete goes beyond protecting a reasonable economic interest and impermissibly denies the departing employee the opportunity to secure future employment. Beyond those considerations, there are several policy concerns that overlay non-compete agreements that are unique to government contracting in the intelligence community. This article will explain the tension between overly broad and overly narrow non-compete agreements as well as explore the policy considerations that present particular difficulties faced by companies competing for government contracts.[2]
PART I: EXAMINING THE NON-COMPETE AGREEMENT
Courts generally look to three factors when considering the validity, or lack thereof, of a non-compete agreement: scope, duration, and geography. In doing so, the court does not give determinative weight to any one factor.[3] However, prior to doing so, the court must address the threshold matter of whether or not the employer seeking to enforce the non-compete agreement has a valuable, protectable, economic interest.[4] Separately, the court will also determine if the agreement runs afoul of public policy. Certain non-compete agreements in the medical field offer a useful comparison to the government contracting and specifically, the intelligence community.[5]
In examining each of the three factors of duration, scope, and geography, the courts traditionally apply a ‘rule of reason’, that is —does the agreement tailor each of these factors to meet the employers needs to protect a valid interest while still allowing the former employee to reasonably be able to seek employment?[6] Again, no one factor is determinative, so an agreement that is broad in geographic scope may still be valid if it is a short duration, or if the geographic scope is reasonable in the circumstances.[7] However, in the context of government contracting, the non-compete agreement invokes public policy considerations that are not central to similar agreements in other contexts.[8]
PART II: GOVERNMENT CONTRACTING IN THE INTELLIGENCE COMMUNITY AND MEDICAL PROFESSION – AN ANALOGOUS SITUATION
Since most employees working for an employer’s contract with a government agency spend most, if not all, of their time on the agency’s site, not being able to move to successor contracts with that same agency could hinder that agency’s ability to have a continuity of service. In this regard, there is a public policy consideration when the outgoing employer holding the government contract hinders their employee’s ability to travel to the next employer that receives the contract as it makes it difficult for the agency to continue its work.[9] Likewise, it is self-evident that government contracting work with particular agencies may implicate national security concerns.
This situation is analogous to the assessment of non-compete agreements in the medical field due to the concern of limiting patient choice from a policy perspective.[10] While, at least in Maryland, public policy is not an automatic bar to the validity of non-compete agreements in health care, the argument that they can impermissibly limit patient choice is still applicable, especially in certain contexts.[11] The limitation on patient choice is similar to the limitation non-compete agreements could place on client –a.k.a. government agency – choice in the government contracting context and be a hindrance to the continuity of government services and the ability to provide essential services for the maintenance of national security.[12]
However, courts have yet to let this argument win the day when such non-compete agreements have been challenged.[13] In one particular case in Virginia, the court upheld a non-compete agreement as reasonably tailored to protect the employer’s interest and did not determine that it ran afoul of public policy.[14] Because the agreement was so narrowly drawn as to only have bearing on one particular project, a project that was since abandoned by the agency, the court held that it was not broad enough to be entitled to invalidation.[15] However, this case was litigated between a government contractor and its subcontractor, not a contractor and its former employee.[16]
Other contexts may be more susceptible to a policy argument based on continuity of government service, for instance, when an employee is subject to a non-compete with an employer that lost its contract and cannot work for the winning contractor at that same agency. For example, in Ecology Services, Inc. v. Clym Environmental Services, the Court of Special Appeals of Maryland invalidated a non-competition agreement on the basis of public policy in a toxic waste removal context stating that it would “reduce the number of eligible candidates for employment positions within a federal government contract.”[17]
Some analysts believe that non-competes controlling government contracted employees in the intelligence community cannot be enforced at all.[18] There is a strong government interest in being able to keep an employee, who nominally works for a private sector company, in his or her chair at the agency even if the private sector employer loses its contract.[19] If, however, that employee has signed a non-compete agreement with the private sector company that prohibits him working for a successor contractor (another private sector company), that agency would likely be disrupted by having to retrain and clear a new employee from the successor contractor.[20] This would invalidate all non-competes structured in this way because of the “continuity of services” provision in the Federal Acquisition Regulation (“FAR”).[21] This provision prohibits the restriction on employees being able to work for certain agencies if that restriction inhibits the agency’s ability to carry out its mandate.[22] Cases involving situations that deal with national security and information technology in particular could be susceptible to this argument because of the constantly changing landscape of the field would require greater resources to retrain and educate a new employee.[23] Thus, a strong government interest exists in keeping the old employee, regardless of his or her private sector employment situation, in his or her chair at the agency.
PART III: CONCLUSION
Overall, courts have not directly addressed a non-compete argument in the government contracting space from a policy perspective. However, this does not indicate that such contracts are immune from these considerations and certain contexts could present for stronger policy arguments than others. When drafting non-competition agreements, it is important to consider which industry the contract will govern, the mobility of agencies and employees in that field, the scope, duration, and the geography the agreement covers. As more cases are tried, there will be a clearer roadmap, but for now, it should be noted that there is a looming policy argument against non-compete agreements in the government contracting field, especially the intelligence community, due to continuity of government service concerns and potential national security concerns that overlay the traditional litigation factors of duration, scope, and geography.
Adam E. Konstas is an attorney in PK Law’s Labor and Employment Group and Education Law Group. He represents local school boards, superintendents, private schools, and private sector employers before federal and state courts, and federal and state civil rights agencies on a variety of matters, including employment discrimination litigation, teacher and student discipline, collective bargaining, and sexual harassment. Mr. Konstas can be contacted at 410-339-5786 or akonstas@pklaw.com.
[1] See Tom Harrington and R. Scott Oswald, The Best Defense is a Good Offense: Invalidating Non-Compete Agreements When Leaving a Company, Westlaw Journal Government Contract, 28 No. 8 Westlaw Journal Government Contract 1 Aug. 18, 2014 (hereinafter “Harrington and Oswald”)
[2] See infra Section I-III.
[3] See Harrington and Oswald, supra, note 1.
[4] Michael A. Hordell, et al., Employment Law for Government Contractors: A Primer, Procurement Lawyer, 39 WTR Procurement Law 3, Winter 2004; see also Robert R. Niccolini and Kevin F. Arthur, Covenants not to Compete in Health Care, Maryland Bar Journal, 42-DEC Md. B.J. 32, November/December 2009.
[5] Id.
[6] See Harrington and Oswald, supra, note 1.
[7] See id.
[8] See id.
[9] Jill R. Aitoro, Noncompete agreements are commonplace in federal contracting. So what’s wrong with that? They can’t really be enforced. Washington Business Journal. November 25, 2011 (hereinafter “Aitoro”).
[10] See Harrington and Oswald, supra, note 1.
[11] Such as situations where there are very few physicians in a given market, or the physician performs a hard to come by service.
[12] See Aitoro, supra, note 9.
[13] See Preferred Systems Solutions v. GP Consulting, 732 S.E.2d 676 (2012).
[14] Id.
[15] Id. at 681-82.
[16] Id.
[17] 181 Md. App. 1, 25 (2008). But see Bowhead Information Technology Services, v. Catapult Technology Ltd., 377 F. Supp.2d 166 (2005)(where the court chose not to address a continuity of service argument to invalidate a non-competition agreement on an government IT contract because the succeeding contractor did not have standing).
[18] See Aitoro, supra, note 9.
[19] Id.
[20] Id.
[21] 48 C.F.R. 137.110.
[22] See Aitoro, supra, note 9.
[23] See Harrington and Oswald, supra, note 1.
