The Supreme Court of Virginia has a chance to clarify the law on noncompetes as it takes a fresh look at an agreement it upheld over 20 years ago.
Then and now, a pest control company with an extensive customer list asks employees to sign a contract intended to keep a defecting employee from filching clients and doing the same kind of work, in the same area.
In 1989, the high court said in Paramount Termite Control Co. v. Rector, 238 Va. 172 (1989), that five former employees were bound by a noncompete that said they could not solicit Paramount customers within two years of leaving the business in the county where they had worked.
Baltimore-based Paramount Termite Control acquired Virginia-based Paramount Termite in the 1980s, and the two companies merged to form Home Paramount Pest Control.
Yesterday, the high court heard argument in Home Paramount Pest Control Cos. v. Shaffer, Record No. 101837, which involves a noncompete agreement nearly identical to the one in Paramount. In Shaffer, a Fairfax Circuit Court refused to enforce the noncompete, saying it was overly broad.
According to the lawyer for Paramount, Fairfax Circuit Judge Bruce D. White erred when he looked only to the scope of the restricted activities and failed to analyze the agreement as a whole.
Fairfax lawyer Alexander Francuzenko also challenged the trial court’s use of the popular “janitor test” to strike the entire agreement.
Lawyers also frequently use the “janitor defense” to free an employee from a noncompete. By posing a hypothetical job that is remote from the employer’s legitimate business interests, but could be barred under the noncompete, the lawyer proves the noncompete is too expansive. For instance, an agreement worded too broadly may keep a former sales representative from working as a janitor or secretary.
“You can throw out a hypothetical on any contract,” Francuzenko said.
“What’s appropriate is to look at specific facts of the case,” Francuzenko argued. Throwing hypotheticals at a case is “a common practice,” he said, “not only in this case.”
Using a hypothetical is “taking the easy way out,” in a “shortcut” analysis, he said.
Fairfax lawyer Charles W. Sickels represented Justin Shaffer, the former Paramount employee.
In 1989, Sickels represented Paramount in the earlier case against Thomas Rector. Although he won that case for the employer, he asked the high court to uphold the judgment for the employee this time, because the law has changed.
Justice Cleo E. Powell observed the high court was facing “the same agreement, same language, upheld by this court.”
But Sickels said more recent Virginia Supreme Court cases, including Motion Control Sys. Inc. v. East in 2001 and Omniplex World Servs. Corp. v. US Investigations Servs. in 2005, show that “you have to look at what’s being restricted” under the agreement.
“Are you asking us to overrule Paramount?” asked Justice William C. Mims.
Sickels responded that the Supreme Court said in the 1989 case it was interpreting the restriction to apply only to pest control services.
Neither Francuzenko nor Sickels could be reached for comment.
A decision in Shaffer is expected before the end of the year.
Also pending before the high court is a noncompete contest that arose from an agreement to sell a business.
William Moore sold his insurance business to BB&T Insurance in 1999, but agreed to stay on to operate the Petersburg branch. In 2009, Moore and coworkers Donna Perkinson left BB&T to join Thomas Rutherfoord Inc., a BB&T competitor. BB&T’s biggest client, a trucking company, also went to Rutherfoord, BB&T said.
BB&T sued for breach of fiduciary duty and breach of the noncompete agreement Moore signed when he sold his insurance business to BB&T. BB&T alleged that in 2009, Moore changed the process for obtaining renewal information for existing BB&T insurance customers and delayed implementing renewals, before he switched from BB&T to Rutherfoord.
Richmond Circuit Judge Richard D. Taylor said the defendants’ actions “exceeded mere preparation,” but he dismissed BB&T’s suit. BB&T argues on appeal that Taylor should have used a different standard in assessing a noncompete that was part of a sales agreement.
Oral argument has not been set in BB&T Ins. Servs. v. Thomas Rutherfoord Inc., Record No. 101483.