Justia.com Opinion Summary: Employee of a pest control company signed an employment agreement containing a provision stating that he would not engage in similar business within two years after he ceased employment. After resigning and within the two-year period set forth in the provision, Employee became employed by another pest control company. Employer filed a complaint asserting that Employee's subsequent employment violated the provision. Employee filed a plea in bar, asserting that the provision was overbroad and therefore unenforceable. The circuit court granted the plea in bar and dismissed the complaint. The Supreme Court affirmed, holding that the circuit court did not err in ruling the provision was unenforceable.
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PRESENT:
All the Justices
HOME PARAMOUNT PEST CONTROL
COMPANIES, INC.
v.
Record No. 101837
OPINION BY
JUSTICE WILLIAM C. MIMS
November 4, 2011
JUSTIN SHAFFER, ET AL.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Robert J. Smith, Judge
In this appeal, we consider whether a “non-compete”
provision in an employment agreement is overbroad and therefore
unenforceable.
I.
BACKGROUND AND MATERIAL PROCEEDINGS BELOW
Justin Shaffer was an employee of Home Paramount Pest
Control Companies, Inc. (“Home Paramount”).
In January 2009, he
signed an employment agreement containing the following
provision (“the Provision”):
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, in any city, cities, county or
counties in the state(s) in which the Employee
works and/or in which the Employee was assigned
during the two (2) years next preceding the
termination of the Employment Agreement and for a
period of two (2) years from and after the date
upon which he/she shall cease for any reason
whatsoever to be an employee of [Home Paramount].
In July 2009, Shaffer resigned from Home Paramount.
Soon
thereafter and within the two-year period set forth in the
Provision, he became employed by Connor’s Termite and Pest
Control, Inc. (“Connor’s”).
In September 2009, Home Paramount filed an amended verified
complaint asserting that Shaffer’s employment by Connor’s
violated the Provision and alleging, among other things, breach
of contract by Shaffer and tortious interference with contract
by Connor’s.
The defendants filed a plea in bar to these
claims, asserting that the Provision is overbroad and therefore
unenforceable.
After an evidentiary hearing, the circuit court
granted the plea in bar and dismissed the relevant counts of the
amended complaint.
The remaining counts then were nonsuited and
we awarded Home Paramount this appeal. 1
II. ANALYSIS
The enforceability of a provision that restricts
competition is a question of law that we review de novo.
Omniplex World Servs. Corp. v. US Investigations Servs., Inc.,
270 Va. 246, 249, 618 S.E.2d 340, 342 (2005).
It is enforceable
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.” Id.
1
The nonsuited claims are not within the scope of this
appeal.
2
The employer bears the burden of proving each of these factors.
Modern Env’ts, Inc. v. Stinnett, 263 Va. 491, 493, 561 S.E.2d
694, 695 (2002).
When evaluating whether the employer has met
that burden, we consider the “function, geographic scope, and
duration” elements of the restriction.
Simmons v. Miller, 261
Va. 561, 581, 544 S.E.2d 666, 678 (2001).
These elements are
“considered together” rather than “as three separate and
distinct issues.”
Id.
Home Paramount asserts that the circuit court erred by
focusing on the language of the Provision prohibiting Shaffer
from “engag[ing] indirectly or concern[ing] himself . . . in any
manner whatsoever” in pest control “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.”
By doing so, Home
Paramount argues, the court took those words out of context and
gave undue weight to the function element of the enforceability
analysis to the exclusion of the geographic scope and duration
elements.
Home Paramount contends the geographic scope was
relatively narrow and the duration was one commonly accepted for
such provisions, so those elements compensate for the breadth of
the function element, making the Provision as a whole no broader
than necessary to protect its legitimate business interests.
disagree.
3
We
We have consistently assessed the function element of
provisions that restrict competition by determining whether the
prohibited activity is of the same type as that actually engaged
in by the former employer.
For example, in Blue Ridge
Anesthesia & Critical Care, Inc. v. Gidick, 239 Va. 369, 389
S.E.2d 467 (1990), the employer was a medical equipment vendor.
We upheld a provision that prohibited employees from “open[ing]
or be[ing] employed by or act[ing] on behalf of any competitor
of [the] [e]mployer which renders the same or similar services.”
Id. at 370, 389 S.E.2d at 468.
However, that provision included
explicit language allowing employees to “work[] in the medical
industry in some role which would not compete with the business”
of the employer.
Id. at 371, 389 S.E.2d at 468.
We noted that
“the former employees are not forbidden from working in any
capacity for a medical equipment company, or from selling any
type of medical equipment.
They are only prohibited ‘from
working in the medical industry in some role which would . . .
compete with the business’ ” of the employer.
Id. at 373, 389
S.E.2d at 469 (emphasis in original).
We upheld a similar provision in Advanced Marine
Enterprises, Inc. v. PRC Inc., 256 Va. 106, 501 S.E.2d 148
(1998).
In that case, the employer provided marine engineering
services and included in its employment agreement a provision
prohibiting its employees from “rendering competing services to”
4
any customer of the employer for whom the employee had performed
services during the period of his employment.
S.E.2d at 151.
Id. at 111, 501
We noted that the provision “does not contain a
blanket prohibition against working for a competitor.
Instead,
[it] merely prohibits an employee . . . from ‘rendering
competing services to’ ” the former employer’s customers.
Id.
at 119, 501 S.E.2d at 155.
By contrast, we held that a broader provision was
unenforceable in Simmons.
It prohibited former employees from
“directly or indirectly own[ing], manag[ing], control[ing],
be[ing] employed by, participat[ing] in, or be[ing] connected in
any manner with ownership, management, operation, or control of
any business similar to the type of business conducted by” the
former employer.
261 Va. at 580, 544 S.E.2d at 678.
We
concluded the provision was “considerably broader than” the
former employer’s business activity, which was limited to the
importation of a single, “particular brand of cigars grown and
manufactured in the Canary Islands.”
Id. at 581, 544 S.E.2d at
678.
Likewise, we held the provision to be unenforceable in
Motion Control Systems, Inc. v. East, 262 Va. 33, 546 S.E.2d 424
(2001).
That provision also prohibited any employee from
“directly or indirectly own[ing], manag[ing], operat[ing],
control[ing], be[ing] employed by, participat[ing] in, or
5
be[ing] associated in any manner with the ownership, management,
operation or control of any business similar to the type of
business conducted by” the former employer, namely the
“design[], manufacture[], [sale] or distribut[ion of] motors,
motor drives or motor controls.”
Id. at 36, 546 S.E.2d at 425.
The functional limitation was too broad because the former
employer dealt solely with specialized brushless motors.
Id. at
37-38, 546 S.E.2d at 426.
In Omniplex World Services, we observed that valid
provisions prohibit “an employee from engaging in activities
that actually or potentially compete with the employee’s former
employer.”
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.
See
Blue Ridge Anesthesia, 239 Va. at 373, 389 S.E.2d at 469 (noting
the unenforceability of a provision prohibiting employment that
competed with any branch of the former employer’s operations
when the former employee had no connection to some of those
branches).
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.
Env’ts, 263 Va. at 495, 561 S.E.2d at 696.
6
Modern
In this case, the Provision is akin to those we found
unenforceable in Simmons and Motion Control.
On its face, it
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.
Home Paramount protests that this rule of law invites
circuit courts to do what the court did in this case, to
contemplate various “hypothetical job duties” including
bookkeeping, vehicle maintenance, and janitorial services.
But
Home Paramount invited the circuit court to contemplate such
hypotheticals when it drafted a provision that prohibits former
employees from working for competitors in any capacity.
Because
Home Paramount did not confine the function element of the
Provision to those activities it actually engaged in, it bore
the burden of proving a legitimate business interest in
prohibiting Shaffer from engaging in all reasonably conceivable
activities while employed by a competitor.
7
Home Paramount also argues that the circuit court erred in
failing to consider its evidence of Shaffer’s academic training
and work experience – for example, that Shaffer had a bachelor’s
degree in entomology and had no experience in bookkeeping,
vehicle maintenance, or janitorial service.
This evidence, Home
Paramount contends, would have eliminated these hypothetical job
duties from the scope of the court’s consideration.
The
argument that the scope of the function element could be altered
by extrinsic and extraneous evidence to mean something narrower
than its clear language is without merit.
Home Paramount has
not argued that the Provision is ambiguous and that recourse to
parol evidence was required to interpret it.
Home Paramount
thus was limited to adducing evidence to prove that the language
it chose furthered its legitimate business interests, did not
unduly burden Shaffer’s ability to earn a living, and was not
contrary to public policy.
See Simmons, 261 Va. at 580-81, 544
S.E.2d at 678.
Although we weigh the function element of a provision that
restricts competition together with its geographic scope and
duration elements, 2 the clear overbreadth of the function here
cannot be saved by narrow tailoring of geographic scope and
duration.
Accordingly, we will affirm the circuit court’s
2
Neither Shaffer nor Connor’s has objected to these
elements of the Provision.
8
judgment that the Provision was overbroad and therefore
unenforceable.
Citing Paramount Termite Control Co. v. Rector, 238 Va.
171, 380 S.E.2d 922 (1989), 3 Home Paramount also argues that
“[i]t has been settled law for more than 20 years that similar
language of Home Paramount’s non-compete agreement is not overly
broad and is enforceable.”
Home Paramount thereby suggests that
the doctrine of stare decisis compels us to uphold the Provision
in this case.
We disagree.
Stare decisis “is not an inexorable command.”
McDonald v.
City of Chicago, 561 U.S. ___, 130 S.Ct. 3020, 3063 (2010)
(Thomas, J., concurring) (quoting Lawrence v. Texas, 539 U.S.
558, 577 (2003)) (internal quotation marks omitted).
It “was
never meant to prevent a careful evolution of the law.
Stare
decisis, pushed to extremes, would mean the law, once stated by
the courts, could never be changed by the courts.”
Selected
Risks Ins. Co. v. Dean, 233 Va. 260, 276, 355 S.E.2d 579, 588
(1987) (Poff, J., dissenting).
Without such change, we would be compelled
to ignore our duty to develop the orderly
evolution of the common law of this Commonwealth.
Indeed, this Court’s obligation to reexamine
critically its precedent . . . enhance[s]
confidence in the judiciary and strengthen[s] the
importance of stare decisis in our jurisprudence.
3
Home Paramount is the successor-in-interest to the
prevailing party in this 1989 case.
9
Although we have only done so on rare occasions,
we have not hesitated to reexamine our precedent
in proper cases and overrule such precedent when
warranted.
Nunnally v. Artis, 254 Va. 247, 253, 492 S.E.2d 126, 129 (1997).
One condition warranting a departure from precedent is where the
law has changed in the interval between the earlier precedent
and the case before us.
See Lentz v. Morris, 236 Va. 78, 81-82,
372 S.E.2d 608, 609-10 (1988).
Then “[w]e have a duty . . . to
acknowledge when our later decisions have presented an
irreconcilable conflict with [the earlier] precedent.”
Newman
v. Erie Ins. Exch., 256 Va. 501, 509, 507 S.E.2d 348, 352-53
(1998).
We acknowledge that the language of the provision we upheld
in Paramount Termite is identical to the Provision.
However, we
have incrementally clarified the law since that case was decided
in 1989.
In the intervening twenty-two years, we have gradually
refined its application beginning with Blue Ridge Anesthesia and
continuing through Advanced Marine Enterprises, Simmons, Motion
Control Systems, and ultimately Omniplex World Services in 2005.
Therefore, to the extent that Paramount Termite conflicts with
any portion of our holding today, Paramount Termite is
overruled.
Finally, Home Paramount argues the circuit court erred in
failing to consider its evidence that Shaffer actually breached
10
the Provision by soliciting its customers.
However, the
threshold question is whether the Provision is enforceable.
Since the circuit court determined that the Provision cannot be
enforced, the issue of its actual breach was not reached.
To
the extent that Home Paramount argues its evidence of actual
solicitation proved it had a legitimate business interest in
prohibiting Shaffer from engaging in the same activity for
Connor’s that he engaged in during the course of his employment
by Home Paramount, such evidence would have been relevant if the
function element in the Provision had been confined to barring
such activity.
Because we have found the circuit court did not
err in ruling the Provision unenforceable, Home Paramount’s
evidence of Shaffer’s actual breach was not relevant.
III.
CONCLUSION
For the foregoing reasons, we will affirm the judgment of
the circuit court.
Affirmed.
JUSTICE McCLANAHAN, dissenting.
The test for determining the validity of a non-compete
agreement was the same when this Court, in 1989, decided
Paramount Termite Control Co. v. Rector, 238 Va. 171, 380 S.E.2d
922 (1989), as it is today.
Applying this test, we held in
Paramount that the non-compete agreement at issue was valid.
The non-compete agreement at issue in this case, involving the
11
very same company and business interests, is identical to the
one we upheld in Paramount, as the majority acknowledges.
The
majority nevertheless rejects Paramount as controlling authority
in this case, and, indeed, overrules it.
Adherence to the
doctrine of stare decisis, in my opinion, demands otherwise.
In overruling Paramount, the majority in effect penalizes
the eminently and uniquely justified reliance of this Virginia
business upon this prior precedent in ordering its affairs after
prevailing in the prior case.
As Montesquieu cautioned, were
judicial opinions "to be the private opinion of the judge,
people would then live in society, without exactly knowing the
nature of their obligations."
1 Charles de Secondat, Baron de
Montesquieu, Spirit of Laws 165 (J. V. Prichard ed., Thomas
Nugent trans., G. Bell & Sons, Ltd. 1914) (1752).
With today's
decision, the majority fails to give due respect and deference
to a basic tenet of stare decisis, which is that "in a well
ordered society it is important for people to know what their
legal rights are, not only under constitutions and legislative
enactments but also as defined by judicial precedent, and when
they have conducted their affairs in reliance thereon they ought
not to have their rights swept away by judicial decree."
Myers
v. Moore, 204 Va. 409, 413, 131 S.E.2d 414, 417 (1963).
"For it
is an established rule to abide by former precedents,"
Blackstone explained, "where the same points come again in
12
litigation; as well to keep the scale of justice even and
steady, and not liable to waver with every new judge's opinion."
1 William Blackstone, Commentaries *69. *
I therefore must dissent, agreeing with Justice Compton in
Newman v. Erie Ins. Exch., 256 Va. 501, 510, 507 S.E.2d 348, 353
(1998) (Compton, J., dissenting) (quoting Smith v. Allwright,
321 U.S. 649, 669 (1944) (Roberts, J., dissenting)) that
"[f]requent overruling of an appellate court's decisions tends
to bring adjudications of the tribunal 'into the same class as a
restricted railroad ticket, good for this day and train only.' "
*
Judge Kelsey, with our Virginia Court of Appeals, put it
well when he wrote: "By insisting upon a deep respect for stare
decisis, the blueprints for the judiciary sought to siphon off
decisionmaking power from those who, at a given moment, occupy
the bench and then redistribute that power along a
multigenerational line of jurists." D. Arthur Kelsey, The
Architecture of Judicial Power: Appellate Review & Stare
Decisis, Virginia Lawyer (Oct. 2004, at 17). See also The
Federalist No. 78 (A. Hamilton) (explaining that the judiciary
would be self-policing through adherence to precedents).
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