Virginia Non-Competition Law After Home Paramount

Virginia Non-Competition Law After Home Paramount

Mar 1, 2013

The 2011 Virginia Supreme Court decision in Home Paramount Pest Control Companies, Inc. v. Shaffer turned Virginia non-competition law upside down. As I discussed more fully in a prior article, Home Paramount established a new, stricter test for enforceability of post-employment limitations based on job function. Due to this decision, many businesses have reviewed and revised their existing agreements to bring them into compliance with the new standards. Another result of the case is that employees found to be in violation under the old law have challenged prior court determinations favorable to the employer. One such case is United Marketing Solutions, Inc. v. Goldberg.

Prior to Home Paramount, the Loudoun County Circuit Court had found the anti-competition language in the United Marketing Solutions’ (“UMS”) franchise agreement to be enforceable, meaning that restrictions on Goldberg’s post-contract competition were permissible under existing Virginia standards. The UMS covenant included broad restrictions on “performing services” for certain identified parties after the conclusion of the franchising relationship. In light of Home Paramount, counsel for Goldberg asked the court to reconsider its ruling.

The arguments presented by the franchisor appeared to assume that the agreement could not withstand scrutiny under the new Home Paramount test, and Judge Thomas D. Horne of the Loudoun County Circuit Court agreed. No judge wants to overturn a prior ruling, so after recognizing that the UMS non-competition agreement was substantively unenforceable under the new standard, Judge Horne considered procedural theories that might avoid the necessity of reversing the prior decision.

Among these positions was whether the severability provision contained in the contract could be construed to permit excising the overbroad language while preserving the substance of the agreement. The court considered and rejected UMS’s argument that the provision could be preserved through “blue penciling” the offending provision. As Judge Horne observed, “blue penciling,” the process by which a provision is re-written to bring it into compliance with the law, is not permitted in Virginia.

UMS also argued that the severability provision in the agreement permitted the court to excise the portion of the language that ran afoul of Home Paramount. Judge Horne rejected this argument as a veiled attempt to “parse rather than eliminate words within sentences in such a way as to create a new provision” of the agreement – what UMS called severing was just “blue penciling” under a different name.

Ultimately, the Court ruled that the non-competition agreement was overbroad as to function. Therefore, it was unenforceable. UMS may be the first in a series of cases by disappointed former employees seeking a second bite at the apple. Judge Horne’s opinion suggests that the second bite might taste better than the first.