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Non Compete Agreements

Recent Supreme Court Case Calls into Question the Enforceability of Accepted

Non-Compete Agreement Language

Non-competition and non-solicitation provisions are routine features of employment contracts for many Virginia businesses. Such provisions, when properly drafted, can provide an important protection to employers from unfair competition. However, these types of restrictions on trade are disfavored in the law and the burden is on the employer to prove that the provision is reasonable under the circumstances. As a result, the enforceability of such provisions has been the subject of litigation for many years.

In 1989, the Virginia Supreme Court in Paramount Termite Control Co. v. Rector, 238 Va. 171 (Va. 1989), held that a certain non-compete provision was valid and enforceable because it provided a restraint that was no greater than reasonably necessary to protect the employer’s legitimate business interests. For years after this decision, many Virginia businesses have relied upon the language of the non-compete provision found in Paramount Termite in drafting their employment agreements. However, a recent decision out of the Supreme Court of Virginia may have had the effect of rendering many of these previously believed enforceable non-compete provisions, unenforceable.

The Court’s Nov. 4, 2011, decision in Home Paramount Pest Control Cos. v. Shaffer, 2011 Va. LEXIS 222 (Va. Nov. 4, 2011), overruled Paramount Termite and calls into question exactly what is required to render a non-compete provision enforceable under Virginia law. The non-compete provision at issue in Home Paramount was identical to the non-compete provision held to be enforceable in Paramount Termite. Yet, the Supreme Court departed from more than twenty years of legal precedent, holding this provision is unenforceable. In doing so, the Court tracked the development of the law governing the enforceability of non-competition provisions and seemed to suggest that any provision which prohibits an employee from working in the employer’s industry in “any capacity” would be unenforceable.

The dissent written by Justice McClanahan criticized the majority’s departure from the principal of stare decisis. The dissent also emphasized the importance of individuals and businesses being able to rely upon settled law in governing their affairs.

All Virginia businesses who use non-competition or non-solicitation provisions in their employment agreements need to consider whether those provisions are enforceable in light of the Court’s decision in Home Paramount. For assistance in drafting an enforceable non-competition agreement contact the attorneys in the Business Law Group at Hale Ball today. The attorneys at Hale Ball have over 30 years of experience in effectively representing Virginia businesses.

Additionally, if you are an employee who is subject to a non-competition agreement, or employer seeking to enforce a non-compete agreement, and you have questions regarding the enforceability of a non-competition provision, contact the lawyers in the Litigation Section at Hale Ball for advice on your legal rights.

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