July 21st, 2020
No More Non-Competes For Most Virginia Employees
Author: Kristin N. Burtzlaff
In the haze and stress of the pandemic, it is easy to forget that legislatures continue enacting laws that greatly impact the business community outside of the public safety context. Recently, the Virginia legislature passed such a law that renders most non-competition provisions in Virginia employment agreements unenforceable.
The law went into effect on July 1, 2020 and prohibits Virginia employers from entering into or enforcing non-competition provisions for any employee whose average weekly earnings are less than the average weekly wage set by the Commonwealth. As of July 1, 2020, the average weekly wage set by the Commonwealth is $1,137.00. This means that the new law prohibiting non-compete provisions applies to any employee who makes less than $59,124.00 per year. The law also clarifies that non-competition provisions are not permissible for interns, students, apprentices, or trainees who are working in a trade or occupation to gain work or educational experience.
Additionally, the prohibition on non-competition provisions applies to independent contractors who are compensated at an hourly rate that is less than the median hourly rate for the Commonwealth for all occupations, which is reported by the Bureau of Labor Statistics. As of July 1, 2020, the median hourly rate for the Commonwealth is $20.30 per hour.
There is one exception for when a non-competition provision is permissible. For employees who derive most of their earnings from sales, commissions, bonuses, or other incentives, this law will not apply, and these employees may continue to be subject to non-competition provisions.
For any employer that violates this new law, there are harsh penalties. Not only is there a $10,000.00 civil penalty per violation of the law, but employees may also bring a private lawsuit against the employer for any violation and, if the employee prevails, then he/she is entitled to recover his/her reasonable costs, which includes costs and expenses for expert witnesses and his/her attorneys’ fees.
Employers are also obligated to post a copy of the act or a summary of the act in the same location where they post other required employment notices. Employers that fail to post this notice will first be subject to a warning. For a second violation, there is a $250 penalty and for any subsequent violations, the penalty is increased to $1,000 per violation.
Notably, while the new law specifically prohibits non-competition provisions for certain employees and independent contractors, it does not prohibit confidentiality provisions. Moreover, the law also does not broadly prohibit non-solicitation provisions but does prohibit an employer from restricting an employee’s right to provide services to the employer’s customers or clients if the employee did not initiate the contact with the customer or client. In other words, employers can continue to include non-solicitation provisions in their employment agreements, but they cannot restrict a former employee from providing services to a customer or client if the customer or client initiates the contact with the former employee.
In light of this new Virginia law, we highly recommend you review your employment agreements and consider updating them to make sure they are compliant with Virginia law.