Virginia Court Refuses to Enforce Overbroad Non-Compete Provision, Overruling Precedent Regarding an Identical Provision

Tuesday, November 8th, 2011 | Noncompete Litigation, Noncompetition Litigation | No Comments

On November 4, 2011, the Circuit Court of Fairfax County, in Home Paramount Pest Control Co. v. Shaffer, explicitly overruled its 1989 decision in Paramount Termite Control Co. v. Rector, holding unenforceable the same non-compete language it had previously enforced.  The court noted that stare decisis is not “an inexorable command,” and “was never meant to prevent a careful evolution of the law.”

The court examined the following non-compete provision in the employment agreement between plaintiff Home Paramount and  its former employee Justin Shaffer:

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, director or stockholder of any corporation, or in any manner whatsoever . . .

(Emphasis added).

In Virginia and many other jurisdictions, the enforceability of a non-compete provision is a question of law in which the court closely examines the provision to determine if it is narrowly drawn to protect the employer’s legitimate business interest, is not unduly burdensome on the employee’s ability to earn a living, and is not against public policy.  The court considers as a whole the extent of the provision’s restrictions on employment activities; the geographic scope of the restrictions; and the duration of the restrictions.

The court held in Home Paramount that the provision was overly broad because it sought to prohibit Shaffer from working for a competitor in any capacity.  This made the entire non-compete unenforceable.  The court found:

. . . [V]alid provisions prohibit “an employee from engaging in activities that actually or potentially compete with the employee’s former employer.”  Omniplex World Services,270 Va. at 249, 618 S.E.2d at 342 (emphasis added).  But a former employee may find new employment with his former employer’s competitor in which he engages exclusively in activities that do not compete with the former employer. . . .  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.

. . . On its face, [the non-compete provision] prohibits Shaffer from working for Connor’s or any other business in the pest control industry in any capacity.  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.  The circuit court therefore did not err in requiring Home Paramount to prove it had a legitimate business interest in such a sweeping prohibition.

(Emphasis added).

Since the court found the non-compete provision overbroad and therefore unenforceable, it did not examine any evidence of the former employee’s purported unfair competition following his tenure at Home Paramount.

Tags: Employment, Virginia

First Circuit Refuses to Toll EMC Noncompete

Tuesday, September 6th, 2011 | Noncompetition Litigation | No Comments

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In EMC Corp. v. Arturi, the First Circuit Court of Appeals refused to enforce EMC Corporation’s noncompetition agreement against its former employees beyond the time period in the employees’ employment contract.  EMC requested that the court extend its injunction against its former employees barring them from using any EMC confidential business information.

In 2007, EMC purchased a consulting firm founded by the defendants for over $200 million.  EMC also hired the defendants as employees, but after one year the defendants left to found a competing firm.  Subsequently, EMC sued to enforce the provisions of a noncompetition agreement the defendants had signed.

Justice David Souter, writing the opinion for the court, held that injunctive relief would be inappropriate following the expiration of the noncompetition agreement even when there has been a delay in enforcement caused by legal appeals.

Related articles

• Ninth Circuit Holds Rule 68 Offer of Judgment to Class Representative Does Not Moot Class Action (unpaidovertimeblog.com)

Virginia Judge Voids Non-compete, Enforces Non-solicitation Provision in Employment Agreement

Wednesday, August 25th, 2010 | Noncompete Litigation, Noncompetition Litigation | No Comments

Settling the dispute between IT professionals and their former employer in Daston Corp. v. MiCore Solutions, Inc., Fairfax Circuit Judge Michael F. Devine held a non-compete provision in an employment agreement void while also holding the agreement’s non-solicitation provision enforceable.  The judge found the non-compete too broad, because it prohibits the IT professionals from providing their cloud computing services to anyone in the United States for one year following termination.  However, the judge found the non-solict to be no broader than necessary for protecting the employer’s “legitimate business interest,” because it merely limited the solicitation of the employer’s prior and current clients for two years. 

For information about The Employment Law Group® law firm and Non-Compete Litigation, click here.

California Court of Appeal Broadens Scope of Wrongful Termination

Friday, August 6th, 2010 | Noncompete Litigation, Noncompetition Litigation | No Comments

The Court of Appeal held in Silguero v. Creteguard, Inc. that an employer can be liable for wrongful termination when firing an employee for having signed an unenforceable non-compete agreement with their prior employer.  Under Tameny, employers cannot terminate employees for a reason that is contrary to public policy.  The court ruled that honoring an unenforceable non-compete agreement violates the public policy declared in Section 16600 of the California Business and Professions Code which favors employee mobility and open competition amongst employers.  Click here for the full opinion.

The employment lawyers of The Employment Law Group® law firm have substantial experience litigating Wrongful Termination claims in California and other states. For more information, click here.

U.S. Court Declines Enforcing BP Non-Compete Against Virginia Gas Station

Tuesday, July 27th, 2010 | Noncompete Litigation, Noncompetition Litigation | No Comments

On July 15, 2010, the U.S. District Court for the Eastern District of Virginia ruled in the case of BP Products N.A. v. Stanley that British Petroleum’s covenant not to compete with a Virginia gas station was overly broad, and therefore unenforceable.  BP included the contested provision in the deed of a gas station it sold to the defendant, Telegraph Petroleum Properties, LLC (Telegraph), owned by Charles Stanley.  The non-compete provision restricts the property owner from selling gasoline, lubricants, and other chemicals or repairing automobiles unless the property is operated as a BP branded service station.  Stanley informed BP in April of 2009 that their fuel was too expensive and that he would purchase a competitor’s fuel. 

In granting summary judgment to Stanley, Judge Brinkema applied the Merriman calculus, stating “In considering the enforceability of restraints on trade, Virginia courts have typically focused on the reasonableness of the restraint . . . .” and whether or not it injures the public by its effect on trade.  Merriman v. Cover, 104 Va. 428, 51 S.E. 817, 819 (1905).  The non-compete provision fails both prongs of Merriman, because it unreasonably restricts Stanley from repairing automobiles, a market where BP does not compete, and “its language chills, and in fact, in this case, entirely halts, the competitive sale of goods to the public.”  Rather than removing the offensive language in the provision, the court ruled the entire non-compete provision unenforceable.  Click here for the full opinion.

Mr. Scott Oswald and Mr. Jason Zuckerman, principals at The Employment Law Group® law firm, wrote an article on non-compete litigation.

Employment Lawyer Scott Oswald Presents at DC Bar

Tuesday, June 15th, 2010 | Breach of Contract, Executive Compensation, Executive Compensation Attorney, Noncompete Litigation, Noncompetition Litigation, Severance Agreements | No Comments

On June 14, 2010, Scott Oswald, Principal at The Employment Law Group® law firm, spoke at a D.C. Bar CLE event entitled “Fundamentals of Employment Law:  Establishing the Employment Relationship.”  For more information about upcoming speaking engagements featuring the employment attorneys of TELG, click here.

Eastern District Court of VA Grants Motion to Dismiss Employer’s Non-Compete Complaints

Wednesday, November 18th, 2009 | Breach of Contract, Noncompete Litigation, Noncompetition Litigation, Tortious Interference | No Comments

On November 16, 2009, Judge Trenga of the U.S. District Court for the Eastern District of Virginia granted defendants’ Motions for Summary Judgment in a suit brought by an employer against former employees for breach of non-compete agreements.  The suit also alleged various breach of contract and tortious interference with business claims. 

In the case, Deltek, Inc. v. Iuvo Systems, Inc., the Court applied a balancing test.  The Court acknowledged Deltek’s legitimate interests in preventing former employees from competing with its proprietary services through the use of Deltek’s confidential and proprietary information as well as the employees’ Deltek funded training and expertise.  However, the Court found that the agreements were too broad and held that Deltek’s interests were eclipsed by the employees’ interests and public policy.  In deciding, the Court took an unusual approach of comparing the agreements of two employees which extended one and two years.  The Court drew a negative inference and found the existence of a one year agreement to suggest “that Deltek itself recognizes that a two year restriction is longer than its legitimate interests require.”

Employers have a legitimate interest in protecting their proprietary information and investment in their labor force.  This interest must be balanced with the public’s interest in promoting gainful employment and economic growth.  Anyone asked to sign a non-compete agreement should give it careful consideration and realize the potential for long-term consequences.

For information on The Employment Law Group® law firm’s Non-Compete Practice, click here.