Claims by employers against former employees, managers, or officers for breach of fiduciary duties abound. Frequently, in the case of employers who have implemented noncompetition agreements, also known as restrictive employment covenants, one or more claims against a former employee are based upon the terms of a “noncompete.” A recent decision of the Supreme Court of Virginia, Home Paramount Pest Control Companies, Inc. v. Shaffer, may render reliance on existing noncompetition agreements less certain for employers, however.
Over a rare and blistering dissenting opinion by one of the Justices, decrying the abandonment of stare decisis (adherence to legal precedent), the Virginia Supreme Court reversed the position it took 22 years previously by striking down an employee’s noncompetition agreement as unenforceable. The noncompetition agreement at issue in 2011 was for the same company and upon the same terms that, in 1989, the Court held to be enforceable. In the present case, the Court did not strike down the noncompetition agreement on the basis of any geographic “over-breadth” (too large of a geographic area) or because its terms stretched too far into the future (excessive duration of the noncompetition period). Rather, the Court’s analysis came down to a “functional” analysis – whether the prohibition of working for a competitor in “any” capacity was overly broad.
The majority opinion characterized the Court’s holding as part of a gradual refinement of the law, noting that the Court’s decisions since 1989 have “incrementally clarified” the Court’s position on the subject matter. The dissenting Justice, however, cautioned that “frequent 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.”’ Whether seen as an extension of an evolving body of case law or a repudiation of stare decisis, employers, employees and their respective counsel will want to undertake a functional analysis of any existing agreements in light of the Shaffer case.