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Sea Change in Virginia Non-Competition LawPrint PDF
On Sept. 12, the Virginia Supreme Court handed down Assurance Data Inc. v. Malyevac, rebalancing the scales in the continuing battle to find the proper equilibrium between over-breadth and enforceability in non-competition agreements.
Earlier this year, Loudoun County Circuit Court Judge Thomas Horne raised eyebrows when he over-ruled a former employee’s demurrer to a non-competition claim on a clause with traditional earmarks of over-breadth. In Government Strategy & Technology, LLC v. O’Donnell, Judge Horne reasoned that a proponent of enforceability ought to have the opportunity to present facts supporting the reasonableness of the clause before the court ruled on the merits of the claim. Now the Virginia Supreme Court has reached the same conclusion.
Since 2011, when the Supreme Court handed down Home Paramount Pest Control Companies, Inc. v. Shaffer, the outlook has darkened for employers seeking to restrain the competition of former employees. The Home Paramount decision rendered non-competition agreements that had been expressly enforceable under prior law suddenly overbroad and unenforceable. Courts and litigators braced for a surge in challenges and a landscape tilted toward the employee.
Substantively, the law of Home Paramount has not changed and the standard of reasonableness is still a high bar for employers to clear. What Assurance Data promises is that the proponent of the non-competition agreement will have the chance to put on evidence and explain why the standard set forth in the agreement is fair and reasonable to both the employer and the employee.
Assurance Data arose in the Circuit Court of Fairfax County, where Malyevac, a former employee of Assurance, who had signed a non-competition agreement while employed there, responded to his former employer’s suit by filing a demurrer. A demurrer is a litigation tool used to argue that the plaintiff has failed to state a legally enforceable claim. In this case, that the clause in question was unenforceable as a matter of law and irrespective of the particular facts that applied to it. In accordance with established case law, Judge Robert J. Smith agreed with Malyevac, ruling that the non-competition agreement was overbroad and unenforceable on its face for any one of several reasons.
In response, on appeal, Assurance emphasized the procedural, arguing that a demurrer is designed only to test “whether a cause of action has been pled and that it cannot be used to decide the merits of the claim” and that Assurance was “entitled to present evidence to meet that burden.” Justice Kinser, writing for the court, agreed, holding that regardless of the apparent inadequacies of the non-competition provision, the former employer is entitled to its day in court and a chance to explain the rationale for the restrictions.
Assurance Data does not mean that all non-competition cases will go to trial. Justice Kinser specifically distinguished motions for summary judgment and pleas in bar – two vehicles for achieving pre-trial disposition – because in each case evidence is or can be adduced and relied upon.
Many expect that the plea in bar will become the vehicle by which most non-competition agreements are tested. However, the results in Government Data reveal another practical fact: despite the high bar created by Home Paramount, judges – and juries, given the opportunity – might be more likely to enforce a legally over-broad non-competition agreement when employers are given a chance to present their side of the argument. After a full hearing in Government Data, the jury ruled for the employer, concluding that it had a legitimate interest in enforcing the broad non-compete.