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Virginia’s New Noncompete Statute effective July 1

Virginia became one of the latest states to pass legislation limiting the use of employee noncompete agreements. Beginning July 1, 2020, certain noncompete agreements are prohibited by statute. This blog post examines that new statute and what it means for employers and employees.

The statute states that “No employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any low-wage employee.” The statute defines “low-wage employee” as follows:

“Low-wage employee” means an employee whose average weekly earnings . . .  are less than the average weekly wage of the Commonwealth as determined pursuant to subsection B of §65.2-500. . . . “[L]ow-wage employee” shall not include any employee whose earnings are derived, in whole or in predominant part, from sales commissions, incentives, or bonuses paid to the employee by the employer.

The term “low-wage employee” does not mean “minimum wage” for example, because currently the “average weekly wage of the Commonwealth” is over $1,000 per week, or $52,000 per year. However, if an employee is paid that amount or less, but is paid “predominantly” from sales commissions, incentives, or bonuses, that employee is not a “low-wage employee” and the “noncompete” restriction does not apply.

If an employer enters into a noncompete agreement with a “low-wage employee” on or after July 1, 2020, that agreement cannot be enforced or even threatened to be enforced. Otherwise, a low-wage employee may bring a lawsuit against that former employer. The remedy for a successful case brought by the employee could include “payment of liquidated damages, and awarding lost compensation, damages, and reasonable attorney fees and costs.” Additionally, the law imposes a $10,000 civil penalty per violation. Employers are required to “post a copy of this section or a summary approved by the Department in the same location where other employee notices required by state or federal law are posted.”

However, the statute permits certain employee agreements. “Nondisclosure” agreements are permitted to the extent they “prohibit the taking, misappropriating, threatening to misappropriate, or sharing of certain information, including trade secrets.” Further, a non-solicitation agreement is permitted so long as the agreement “shall not restrict an employee from providing a service to a customer or client of the employer if the employee does not initiate contact with or solicit the customer or client.” I would expect that provision to be open to interpretation on the issue of whether the former employee “initiated contact.” Consequently, it is important for employers to take another look at their noncompete agreements, because the rules change beginning July 1, 2020. The law does not apply retroactively, so any noncompete agreements that predate July 1, 2020 are not affected.

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John Tarley

John is the firm's managing partner and chairs the firm's small business, zoning, and litigation practice areas.

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Filed under: Business Law, Business Planning, Employment law, General Interest, John Tarley by John Tarley

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