NON-COMPETES FOR “LOW”-WAGE VIRGINIA WORKERS ARE NOW UNLAWFUL
Restrictive covenants, like non-competition agreements or non-solicitation clauses, find their way into numerous agreements, whether during onboarding in an employment agreement, as a stand-alone contract, or in separation or severance agreements, among others. While restrictive covenants have long been highly scrutinized by Virginia courts, Virginia has now joined a handful of states legislating additional limitations on restrictive covenants.
What does the law say?
Virginia Code Section 40.1-28.7:8 states:
No employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any low-wage employee.
Who is a “low”-wage employee?
The answer is, it will change year to year because a low-wage employee is defined by the new law as an employee making “less than the average weekly wage of the Commonwealth as determined [by] . . . subsection B of § 65.2-500.” Accordingly, at present, the determinative rate is $1,204.00 per week, which comes to $62,608.00 annually. Importantly, this figure will fluctuate yearly and employers would be well-advised to review their non-competition agreements once a year.
Crucially, the phrase “covenant not to compete” used above is defined broadly by the statute and might possibly include more than simply a restriction on competition, i.e., non-solicitation of customers.
What is the impact?
The new law creates a private cause of action which allows any eligible employee to sue his or her employer in order to prevent the enforcement of certain restrictive covenants. In so doing, an employee may be entitled to injunctive relief along with liquidated damages, lost compensation, and attorneys’ fees and costs. The law also permits the Virginia Department of Labor & Industry (“DOLI”) to impose a civil penalty of $10,000 (per violation) for employers who enter into, enforce, or threaten to enforce, an offending restrictive covenant agreement.
The new statute exempts some employees, including those whose income is derived in whole or predominantly in part from sales commissions and the like. Thus, the new law may not prohibit non-competes for employees in some sales positions. The new statute is also not meant to prohibit confidentiality or non-disclosure agreements or restrictive covenants entered into before the effective date of the code section, i.e., July 1, 2020.
To start, all Virginia employers must post a copy of the law or a DOLI-approved summary in the workplace. Full text of the law here; DOLI summary here. Moreover, employers should take the time to review their restrictive covenant agreements to ensure compliance with this new law.
— If you have further questions or concerns or would like assistance evaluating your business’s potential exposure under this new law, please contact: