Broad Non-Compete Agreements Less Likely to Be Enforced Today than 20 Years Ago

In Virginia, “non-compete” agreements are enforceable if they are narrowly drawn to protect the employer’s legitimate business interests, are not unduly burdensome on the employee’s ability to earn a living, and are not against public policy. While Virginia courts have recognized that from a public policy perspective, businesses should be able to protect their client base from ex-employees who may leave their employ but continue in the same line of business, what is less clear is exactly which post-employment activities can be restricted before a non-compete becomes overly broad and therefore unenforceable.

The Virginia Supreme Court shed a little more light on the answer to this question yesterday, when it disagreed with itself and overruled Paramount Termite Control Co. v. Rector, 238 Va. 171 (1989). Relying on the precedent set by that case, Home Paramount Pest Control Companies, Inc. (the successor-in-interest to Paramount Termite Control) sued a former employee for breaching the same non-compete provision that was upheld in the earlier case. This time, however, the court struck it down.

The provision at issue stated as follows:

“The Employee will not engage 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, servant, representative, or employee, and/or as a member of a partnership and/or as an officer, HP Logo.gifdirector or stockholder of any corporation, or in any manner whatsoever, in any city, cities, county or counties in the state(s) in which the Employee works and/or in which the Employee was assigned during the two (2) years next preceding the termination of the Employment Agreement and for a period of two (2) years from and after the date upon which he/she shall cease for any reason whatsoever to be an employee of [Home Paramount].”

The court’s main objection to these terms was with respect to the breadth of the activities being restricted, and that fact that it extended to activities that had nothing to do with the activity actually engaged in by the former employer. While the geographic scope and duration of the restriction and were reasonable, the clear overbreadth of the function element outweighed those elements and rendered the entire clause unenforceable.

The non-compete barred the former employee from “engaging even indirectly, or concerning himself in any manner whatsoever, in the pest control business, even as a passive stockholder of a publicly traded international conglomerate with a pest control subsidiary,” noted the Court. Home Paramount did not have a legitimate business interest in preventing its former employees from owning stock in such corporations, so the provision was deemed overly broad.

Non-compete law in Virginia has evolved over the years. Blanket prohibitions against working for a competitor will not be upheld automatically, and often will be found overly broad. When a former employer seeks to prohibit its former employees from working for its competitors in any capacity, it must prove a legitimate business interest for doing so. In most cases, an employer is not going to be able to restrict its former employee from finding new employment with a competitor if the new job duties are unrelated to the tasks performed in the previous job.

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