Virginia Supreme Court Issues Important Noncompete Decision

Last week, the Virginia Supreme Court issued an important decision involving a covenant not to compete that was virtually identical to one that it upheld twenty years ago. This time, however, the Court concluded that the covenant was overbroad and unenforceable. The decision essentially confirms that the “janitor rule” is alive and well when it comes to noncompete agreements in Virginia. More after the break.

Justin Shaffer (“Shaffer”), a former employee of Home Paramount Pest Control Companies, Inc., signed an agreement containing a provision that prohibited him from engaging in any manner in any business involved in “exterminating, pest control, termite control and/or fumigation services as an owner, agent, servant, representative, or employee.” The agreement also prohibited him from being a member of a partnership, an officer, director or stockholder of any corporation in any city, county, or state in which he was assigned to work. The agreement contained a two year duration period. After resigning from Home Paramount, Shaffer began working for Connor’s Termite and Pest Control, Inc.

Home Paramount filed a complaint alleging breach of contract by Shaffer and tortious interference with contract by Connor’s. The Circuit Court found the noncompete provision of the agreement overly broad and unenforceable. On appeal, the Supreme Court upheld the Circuit Court’s decision and found that the provision was overly broad because it barred Shaffer from engaging indirectly or concerning himself in any manner with the pest control business, “even as a passive stockholder of a publicly traded international conglomerate with a pest control subsidiary.”

Home Paramount argued that by focusing on the function element of the covenant, the court had overlooked the geographic scope and duration elements of the agreement – that the geographic scope in Shaffer’s agreement was relatively narrow and the duration was one commonly accepted in such provisions. The court disagreed and stated that Virginia courts have usually examined the function element of the provision, and “overbreadth of the function here cannot be saved by narrow tailoring of geographic scope and duration.”

Home Paramount also argued that the Court’s ruling invited circuit courts to contemplate hypothetical job duties in analyzing covenants not to compete (i.e. to apply the “janitor rule” — if the noncompete would prohibit the employee from working as a janitor for a competitor, it would be overbroad). The Court noted that a provision that prohibits employees from working in “any capacity” for competitors invites such hypotheticals, and the employer has the burden of proving its legitimate interest in upholding the agreement.

Home Paramount also argued that the circuit court should have considered Shaffer’s individual experience and training in evaluating what type of job he would have taken in a competitor company. The Supreme Court disagreed because Home Paramount had not argued that the language in the agreement was ambiguous – the Court could not rely on evidence outside of the language to adduce meaning and to establish that the provision furthered Home Paramount’s legitimate business interests.

To read the full opinion, click here.

The Virginia Supreme Court is currently considering another case involving covenants not to compete and employee confidentiality agreements. We will post an update on the case once it is decided.