Covenants not to compete -also known as restrictive covenants - are quite common in employment agreements and in contracts for the sale of businesses throughout West Virginia. Less common by far in the last twenty three years has been one of these provisions which has withstood judicial scrutiny. In fact, in at least two modern cases, these covenants - and employer efforts to enforce them - have actually led to significant employer liability for tortuous interference with prospective business relationships of ex-employees. It was not always thus. Behold the golden age of covenants not to compete in West Virginia - 1910 to 1979.

One of the earliest West Virginia cases dealing with covenants not to compete stemmed from the sale of a blacksmith shop in Braxton County. In Boggs v. Friend, the purchaser of a blacksmith shop secured an oral promise from the seller that he "would not engage in the blacksmith business in the vicinity or neighborhood where said blacksmith shop was located, or at any other place so near thereto as to constitute a rival business, or detract from the patronage which would naturally or likely go to the shop and business purchased by Plaintiff from him." Boggs v. Friend, 77 W. Va. 531, 532, 87 S. E. 873, 874 (1916).

The Circuit Court dismissed the complaint. The Supreme Court reversed and directed the Circuit Court to enjoin the buyer from competing with the Plaintiff "within such limits about the place as the business there located would naturally embrace." Id., at 537, 875. From 1916 through 1978 the West Virginia Supreme Court uniformly enforced covenants not to compete in employer-employee relationships and as part of the terms of the sale of businesses.

In Pemco Corp. v. Rose, 163 W. Va. 420, 257 S. E. 2d 885 (1979), the West Virginia Supreme Court of Appeals considered an employee's appeal from an injunction issued enforcing the employer's restrictive covenant. Given the unbroken history of Supreme Court decisions stretching back over sixty years upholding such provisions, the Circuit Court's ruling upholding the covenant is certainly understandable. However, mirabile dictu, the Supreme Court refused to enforce the covenant on several grounds. The Court held that the covenant was void for lack of consideration because it was entered into after the employment agreement and was, therefore, a new contract requiring new consideration. Further, the Court noted that the employee was not in a position to bargain over the covenant because it was not presented until the employee's first day of work, after the employee had relocated and purchased a home in connection with his new employment. The Court also held that the covenant was an unreasonable restraint of trade because it required the employee to refrain from employment with competitors for two years within a 150-mile radius - much broader than the Court felt was necessary to protect the employer's legitimate business interest in preserving confidential information.

Pemco signaled a sea change in the attitude of the West Virginia Supreme Court toward covenants not to compete and ended the "golden age" of restrictive covenants in West Virginia. From 1916 to 1979 the West Virginia Supreme Court had never refused to enforce a covenant not to compete, despite language purporting to restrict their applicability significantly. Since 1979 the Court has not upheld a single covenant not to compete which it has considered. The exception that proves the rule is a series of cases dealing with health care professionals - to which the Court has now explicitly applied a more lenient standard of review.

In Helms Boys, Inc., v. Brady, 171 W. Va. 66, 297 S. E. 2d 840 (1982), the Court enunciated the new and much more difficult standard for those seeking to enforce covenants not to compete which it had applied de facto in Pemco. The Court considered an appeal by an employee from a Circuit Court decision enjoining him from engaging in the retail furniture and appliance business in violation of a covenant not to compete contained in an employment contract with his former employer. The Supreme Court held that the employee had not acquired any information which was confidential or unique to the former employer. The Court announced the principle which guides it's consideration of the "run-of-the-mill" restrictive covenant to the present day:

"When the skills and information acquired by a former employee are of a general managerial nature, such as supervisory, merchandising, purchasing and advertising skills and information, a restrictive covenant in an employment contract will not be enforced because such skills and information are not protectable employer interests." Helms Boys, Inc., v. Brady, 171 W. Va. 66 297 S. E. 2d 840 (1982).

This syllabus point was cited repeatedly over the next decade as the Court scrutinized covenants not to compete very closely, often finding them unenforceable. In fact, in two decisions the Court approved tort claims by ex-employees who contended that their later employment opportunities had been adversely affected by the unenforceable covenants imposed upon them.

An unusual procedural history preceded the appeal of one such case to the West Virginia Supreme Court. In Torbett v. Wheeling Dollar Savings & Trust Co., 173 W. Va. 210, 314 S. E. 2d 166 (1983), Torbett resigned her employment and sued her former employer, Wheeling Dollar, seeking a declaratory judgment holding the covenant invalid. The Circuit Court found that Torbett knew that Wheeling Dollar would attempt to hold her to the contract and take necessary steps to prevent her from working because they had done this to another former employee. An advisory jury was impaneled by the Circuit Court. It held that the Plaintiff's failure to return to work after she left Wheeling Dollar was the result of the restrictive covenant which Wheeling Dollar had made her sign.

The jury awarded Torbett $35,000 for unearned income as a result of the restriction imposed on her employment. Finding that Wheeling Dollar had no protectable interest which supported the covenant, the Circuit Court affirmed the factual finding of the jury that the covenant was unenforceable and approved the verdict amount. The West Virginia Supreme Court agreed as to enforceability of the covenant, treating the jury and the Circuit Court's determination with considerable deference. Id., at 214, 170. The Court further held that a declaratory judgment action was the proper way for an employee to test the enforceability of a non-competition covenant.

The Court held that the tort of tortuous interference with prospective employment or business relationships applied to covenants not to compete and that in order to make out such a claim the Plaintiff must prove: (1) the existence of a contractual or business relationship or expectancy with a future employer; (2) an intentional act of interference by the former employer through the restrictive covenant; (3) proof that harm was sustained by the interference; and (4) damages. The former employer may then prove lawful justification or privilege for it's behavior. Id., at 217, 173. The Court noted in the concluding paragraph of it's opinion:

"We understand that this opinion may severely curb use of restrictive covenants in future employment contracts. A scrivener must decide whether his covenant is sufficiently narrow to protect only legitimate business interests in a reasonable fashion, or risk his employer-client to damages if it's mere existence interferes with an employment opportunity. Frivolous non-competition clauses in employment contracts will probably be avoided." Id., at 217, 173.

Voorhees v. Guyan Machinery Co., 191 W. Va. 450 446 S. E. 2d 672 (1994), underscored how dangerous attempting to enforce a covenant not to compete can be. Voorhees was hired in 1981 as a salesman for Guyan Machinery Company ("Guyan"), a mining machinery company. In 1985, Guyan required Voorhees to sign a non-competition agreement wherein he agreed that if he should leave Guyan he would not compete with them for a period of twenty-four months within a 250-mile radius of West Virginia.

In 1991, Voorhees resigned from Guyan and, shortly thereafter, began working for Polydeck Screen Corp., a competitor of Guyan. Shortly after Voorhees' employment by Polydeck, Robert Shell, Jr., Chairman of the Board of Directors of Guyan, contacted Polydeck and told it of the existence of the non-competition agreement between Guyan and Voorhees: Shell threatened that he would "go to the highest Court of the land to enforce it." Thereafter, Polydeck informed Voorhees that if he failed to re-negotiate the restrictions of the non-competition agreement with Guyan, Polydeck would fire him. Negotiations were undertaken but no agreement was reached between Voorhees and Guyan and, thereafter, Polydeck fired Voorhees.

Voorhees filed suit in Circuit Court alleging that Guyan's actions in threatening a lawsuit and refusing to permit him to work for Polydeck torturously interfered with his contract of employment with Polydeck. After a jury trial, the Circuit Court found that the non-competition agreement was invalid, that Guyan knew or should have known that it was invalid and that Guyan had tortuously interfered with Voorhees' employment. Compensatory damages in the amount of $75,000.00, punitive damages in the amount of $75,000.00 and pre-judgment interest in the amount of $7,065.76 were awarded.

The West Virginia Supreme Court first noted that the justifications offered by Guyan in response to Voorhees' claims of tortuous interference were insufficient to reverse the jury's findings that Guyan's actions constituted tortuous interference. The Court emphasized the small overlap in product lines between Polydeck and Guyan.

The Court held that Guyan's threat to involve Voorhees' new employer in a lawsuit over the non-competition agreement directly resulted in the loss of Voorhees' Polydeck employment, despite the unenforceable nature of the non-competition agreement with Guyan. The Court found no protectable employer interest in the knowledge that Voorhees possessed as a salesman and upheld the jury verdict against Guyan. As to Guyan's challenge to the award of punitive damages, the Court flatly stated "[w]hen an intentional interference with an employment relationship is alleged, the jury can properly consider the issue of punitive damages." Id., at 456, 678.

Torturous interference claims stemming from agreements not to compete have not always fared so well of course. The risk remains, however, that efforts to enforce could result in a claim - or counterclaim - which could render the practical effect of the covenant worse than the consequences of deleting such a provision altogether. In light of the nearly universal failure of such provisions since 1979, a reasonable employer might conclude they just are not worth the risk.

As mentioned previously, there is a line of West Virginia cases which provide the exception to the rule that covenants not to compete are generally not enforced. This line of cases deals with health care professionals in a variety of settings. The cases span almost twenty years - from 1982 until 2001 - and share in common the fact that in all of them the Supreme Court affirmed the basic validity of the challenged restrictive covenants.

The history of West Virginia cases on covenants not to compete suggests that - outside of the sphere of health care professionals - it will be exceedingly hard to enforce a covenant not to compete. Further, the jurisprudence suggests that efforts to enforce a covenant not to compete outside of the health care field may pose significant risks for the employer seeking to restrict an ex-employee's post-separation activities.