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Non-Competes Must Be Tied to Actual Competitive Threat

    Client Alerts
  • December 02, 2011

Last month, the Virginia Supreme Court held that a non-competition provision in an employment agreement was invalid because it prohibited the employee from working for a competitor in any capacity. In Home Paramount Pest Control Cos. v. Shaffer, the court stated that in order to be enforceable, the agreement could only prohibit the former employee from engaging in activities for a new employer that actually competed against his former employer. This ruling overturned prior Virginia court decisions that upheld the broader restrictions.

The Virginia decision echoes similar recent holdings in North Carolina and other states. Employers with non-competes that simply prevent the employee from going to work for a competitor are increasingly likely to face claims that the restrictions are overbroad and unenforceable. Similarly, restrictions against soliciting any of the former employer's customers are likely to be invalidated if they are not limited to customers with whom the employee worked, or had access to confidential information regarding.

These cases point out the need to carefully tailor restrictive covenants to address the actual competitive threat posed by the particular employee. In the Carolinas and Virginia, these limits are especially important, because courts in these states generally will not re-write restrictions found to be overbroad. The covenants stand or fall based on their existing terms.

Employers with older employment contracts containing non-competes should review these documents to determine if they conform to these evolving legal standards. If not, the employers should consider replacing the older language with new provisions intended to narrow and better define the scope of actual competitive activity prohibited under the agreements.