Virginia’s Prohibition on Non-Compete Covenants for Low-Wage Employees
Date: July 13, 2020
According to the new law, a “covenant not to compete” is an agreement “between an employer and employee that restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his former employer.” Importantly, the law does not affect the enforceability of standard confidentiality agreements, such as those designed to prohibit sharing and misappropriation of trade secrets and proprietary or confidential information and only applies to covenants not to compete entered into on or after July 1, 2020.
The prohibition is limited to low-wage employees. Under the statute, a low-wage employee means an employee whose average weekly earnings are less than $1,137 per week, or $59,124 per year. See Va. Code § 40.1-28.7:8(A). Currently, the rate is based on a formula and is subject to change. To see the current rate, please click here. Additionally, low-wage employees do not include employees paid in whole or predominate part from sales commissions, incentives, or bonuses.
As a result of this new law, employers who require all employees to agree to non-compete agreements may need to change their practice. The law prohibits retaliation as a result of an employee bringing a civil action to enforce their rights under this law. After July 1, requiring, enforcing, or threatening to enforce prohibited non-competes may expose the employer to substantial monetary liability.
The Commissioner of the Department of Labor and Industry may impose a civil penalty of $10,000 for each violation of the prohibition on low-wage worker covenants not to compete. Additionally, an employee now has a private right of action in the event an employer attempts to enforce a non-compete. The employee’s private right of action entitles the employee to an order voiding the covenant not to compete, as well as providing the employee “all appropriate relief,” which can include an injunction, liquidated damages, lost compensation, attorneys’ fees, and costs. Employers are required to post a copy of the law, or a summary approved by the Department of Labor and Industry in the same location where other workplace posters are posted.
To ensure compliance with this new statute, Virginia employers should evaluate their current practices and policies to ensure they are not requiring, enforcing, or threatening to enforce a covenant not to compete on their low-wage workers.
For assistance amending employer policies or more information on Virginia’s new labor and employment laws, contact Betsy Davis, Robert Drewry or any member of our Labor and Employment team.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.