Virginia Bans Covenants Not To Compete for Some Employees


While you were distracted with the COVID-19 crisis, Virginia enacted a number of surprising laws that chip away at its staunchly pro-employer reputation. One such law, Va. Code Ā§ 40.1-28.7:7, which goes into effect on July 1, 2020, prohibits employers from entering into, enforcing, or threatening to enforce a covenant not to compete with so-called "low wage" employees.

A "low-wage employee" is one whose average weekly earnings are less than the average weekly wage in the Commonwealth, which is equal to the maximum workers' compensation benefits allowed by the Virginia Workers' Compensation Commission. That figure, which is adjusted annually, will be $1,137 per week or $59,124 per year as of July 1, 2020. Further, "low-wage employee" includes interns, students, apprentices, or trainees, paid or unpaid, as well as independent contractors compensated at an hourly rate that is less than the median hourly wage for the Commonwealth, which is currently $20.30. "Low-wage employee" does not include someone whose earnings are derived, in whole or in predominant part, from sales commissions, incentives, or bonuses.

The law defines a "covenant not to compete" as any agreement between an employer and employee that restricts the employee's ability, following termination of employment, to compete with his or her former employer. The law does not prohibit non-disclosure agreements. As for non-solicitation agreements (i.e., an agreement that restricts the former employee from soliciting the former employer's customers), it appears that such an agreement may be permissible so long as it does not restrict the former employee from doing work for the customer if the former employee does not initiate contact with or solicit the customer.

An employer who violates this new law is subject to a civil penalty of $10,000 per violation. Further, the law authorizes the employee to bring a civil action against a former employer that attempts to enforce a non-compete in violation of the law. The employee can recover monetary damages, including attorneys' fees and costs, as well as other relief.

When the law goes into effect, employers must post in their workplaces either a copy of the new law or a summary approved by the Virginia Department of Labor and Industry. No such summary is available yet.

The law applies only to covenants not to compete that are entered into on or after July 1, 2020. Therefore, pre-existing covenants not to compete are not directly affected by the law, though we expect the law may make it more difficult to enforce such pre-existing covenants.

Employers should review their employment agreements with experienced employment law counsel to see if any changes are needed, particularly before entering into any new employment agreements containing post-employment restrictions. Vandeventer Black LLP's employment attorneys are available to assist.

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