On Friday November 4, 2011, the Supreme Court of Virginia invalidated an employee non-competition provision in Home Paramount Pest Control Companies v. Shafer. While Supreme Court opinions have progressively narrowed the permissible range of restrictions for nearly two decades, Shafer breaks new ground because the court explicitly overturned settled law.
According to the provision at issue, signed in January 2009, Shafer agreed that he would not:
directly or indirectly concern himself 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, director or stockholder of any corporation, or in any manner whatsoever, in any city, cites, county or counties in the state(s) in which the employee works and or in which the employee was assigned during the two years next preceding termination of the Employment Agreement and for a period of two years from and after the date upon which he shall cease for any reason whatsoever to be an employee of [Home Paramount].
The court found the provision overbroad because it prohibits Shafer from working for a competitor “or any other business in the pest control industry in any capacity,” said the court. “It bars him 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.”
Significantly, and as the court acknowledged, this provision is “identical” to the provision in Paramount Pest Control v. Rector that was deemed enforceable in 1989. Thus the court’s holding calls into question hundreds of non-competition agreements drafted in reliance on Paramount over the past 22 years.
While courts are always cautious about overturning precedents, the holding in Shafer is not surprising. In light of a line of cases since Paramount, the court has progressively eroded the general enforceability of non-competes by eliminating provisions that could be interpreted as possibly preventing competition that would not directly harm the employer or might unreasonably harm the terminated employee. Shafer may be read as the logical conclusion of that trend.
Non-competition provisions are not dead in the Old Dominion, but Virginia’s strong public policy against the enforceability of anti-competitive provisions requires careful thought, thorough evaluation and very narrow draftsmanship. Now more than ever, employers must consider what they need to prohibit, rather than what they want to prohibit, and why such a limitation is necessary to protect their business.
Additionally, it may be prudent to consider whether trade secret and confidentiality agreements – which are more generally enforceable – may serve the same purpose.