By Marcus Mintz
Earlier this month, the Virginia Supreme Court issued an opinion in which it clarified the burdens an employer must meet to enforce a non-compete against a former employee. Specifically, that the employer must demonstrate that the non-compete is no broader than necessary to protect the employer’s “legitimate business interests” and does not “unduly burden” the ex-employee’s right to earn a living. Home Paramount Pest Control Cos., Inc. v. Shaffer, No. 101837, 2011 WL 5248212 (Va. Nov. 4, 2011). In doing so, the Virginia Supreme Court overruled a 1989 opinion in which it upheld the exact same non-compete brought by the plaintiff’s predecessor-in-interest. See Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d 922 (1989). While a dissenting justice took issue with the court’s departure from its prior decision and the effect it may have on parties looking to rely on established precedent, the majority held that its 1989 opinion was effectively eroded over time and its current holding reflected the current state of the law.
The case itself focused on the “function,” or activity, restrictions within the non-compete which the plaintiff, Home Paramount Pest Control Companies, Inc. (“Pest Control”), sought to enforce against its former employee, Justin Shaffer (“Shaffer”). Pest Control claimed that Shaffer’s new employment with a direct competitor violated his non-compete. The specific language at issue prohibited Shaffer from “engage[ing] directly or indirectly or concern himself/herself in any manner whatsoever in the carrying on or conducting the business of exterminating, pest control, termite control and/or fumigation services as an owner, agent … stockholder” for two years in any area in which the employee worked on behalf of Pest Control. However, the case never went to the merits because the circuit court held that the activity restriction of the non-compete was overbroad on its face and consequently, was unenforceable.
Upon appeal, the Virginia Supreme Court affirmed the circuit court and held that the function restriction was facially over-broad because it could prevent Shaffer from performing any duties at a competitor, irrespective of whether such duties were similar to the duties Shaffer held at Pest Control or would have any effect on Pest Control’s legitimate business interests. For example, the court noted that on its face, the non-compete prohibits Shaffer from owning stock in a publicly-traded company which owned a pest control business and Pest Control was not found to have a legitimate business purpose “in such a sweeping prohibition.” After comparing the instant restrictions to non-competes which were upheld in several recent cases, the court affirmed the circuit court’s ruling that Pest Control failed to prove that its chosen language furthered its legitimate business interests and did not unduly burden Shaffer’s right to earn a living.
Ultimately, employers seeking to enforce a non-compete under Virginia law (as well as many other jurisdictions) must take care to utilize language which narrowly tailors the activity restrictions of a non-compete to actual services and/or activities which actually or potentially compete with the former employer and threaten its legitimate business interests.