VIRGINIA NONCOMPETE AGREEMENTS UPDATE

In previous blogs we have discussed several aspects of the 2020 Virginia statute (§ 40.1-28.7:8. Covenants not to compete prohibited as to low-wage employees; civil penalty (virginia.gov)) that restricts the use of noncompete agreements.   As a reminder, the law provides that as of July 1, 2020, employers are prohibited from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee.”  The law defines “low-wage employee” as one whose average weekly earnings are less than the average weekly wage of the Commonwealth, as determined annually by the Virginia Workers’ Compensation Commission.  For 2023, that amount has been increased to $1,343 per week, as shown on the Virginia Department of Labor’s website.  On an annualized basis, the compensation would be $69,836. The law provides that "low-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. There is also a separate provision that applies to independent contractors.

Although the restrictions on the use of noncompete agreements do not apply to those in place prior to July 1, 2020, employers should be reminded of one additional restriction on any agreements entered into after that date.  For the higher-wage or commission-based employees, the statute provides that an 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.”

The statute also contains a little-noticed provision that allows the use of certain confidentiality agreements even if a noncompete agreement is barred:  “Nothing in this section shall serve to limit the creation or application of nondisclosure agreements intended to prohibit the taking, misappropriating, threating to misappropriate, or sharing of certain information, including trade secrets, as defined in § 59.1-336, and proprietary or confidential information.”

As we have also discussed in a previous blog, the Federal Trade Commission (FTC) has issued an even more restrictive proposed rule that would ban noncompete agreements nationwide.  In its proposal, the FTC states that noncompetes are an unfair method of competition, and thus violate the Federal Trade Commission Act. We are waiting to see if that rule becomes final, and whether it would be challenged in court.

Employers must post either a copy of the new law or a summary approved by the Virginia Department of Labor and Industry where other state and federal laws are required to be posted.  A notice on the DOLI website which can be used as the poster also contains the average weekly wage information is found at DOLI Announcements (virginia.gov)