New Virginia Law Prohibits Non-compete Agreements Against ‘Low-Wage Employees’

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Attorney Harrison Oldham

In April, Virginia’s Governor Ralph Northam signed a new bill banning covenants not to compete against “low-wage employees.” As of July 1, 2020, Virginia employers may not enter into, enforce, or threaten to enforce a covenant not to compete with any employee who earns less than $1,137 per week ($59,124 per year).  With this threshold, the new law will apply to a significant number of Virginia’s workers.

The new law broadly defines the term “covenant not to compete” to include a “covenant or agreement, including a provision of a contract of employment, 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.” Accordingly, the law has the potential to affect non-compete provisions contained in employment agreements, standalone restrictive covenants, and separation agreements presented at the end of employment.

The law defines “low-wage employee” as “an employee whose average weekly earnings, calculated by dividing the employee’s earnings during the period of 52 weeks immediately preceding the date of termination of employment by 52, or if an employee worked fewer than 52 weeks, by the number of weeks that the employee was actually paid during the 52-week period, are less than the average weekly wage of the Commonwealth. The threshold amount in the law will be adjusted annually.

This law also includes interns, students, apprentices, and trainees employed, with or without pay, at a trade or occupation in order to gain work or educational experience and independent contractors. However, the definition does 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 new law allows for the continued use of nondisclosure agreements if they are designed to “prohibit the taking, misappropriating, threatening to misappropriate, or sharing of certain information, including trade secrets” and confidential or proprietary information.

One important caveat is that the new law also contains a grandfather clause, whereby the new restrictions apply only to noncompete agreements that are entered into on or after July 1, 2020.  Agreements that are signed before July 1, 2020, are exempt from the new law.

Should an employer violate this new law, then employees may sue “any former employer or other person” (suggesting the potential for individual liability against managers and supervisors) for injunctive relief, liquidated damages (which is not defined by the new law), lost compensation, damages, and reasonable attorneys’ fees and costs. In addition, employers may be subject to a civil penalty of $10,000 for each violation.

So, what does this mean for employers? Well, first, it’s important to note that the “low-wage” referred to in the law is not low-wage, it’s average wage. If you are an employer in Virginia there is a high likelihood that part of your employment population will be protected by this new law. If so, and if you currently impose non-compete restrictions on that portion of your employees, now is the perfect time to review those restrictions to make sure they comply. This is especially important because the law provides a private right of action against the employer, and potential individual upper level management.

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About Harrison Oldham

Harrison grew up in Mansfield, Texas. He attended Texas A&M University for his bachelor’s degree, where he met his wonderful wife, Kelsey. After graduating magna cum laude from Texas A&M, he attended SMU Dedman School of Law, graduating with honors in 2012. Today, Harrison and his wife live in Dallas, Texas with their son, Teddy.

Since graduating from SMU Law, Harrison has worked exclusively in the field of business law. He has spent time in private practice and in-house, working with clients of every size; from single person startups to Fortune 250 companies. Today his practice focuses on serving the diverse needs of businesses and individuals throughout Texas. You can learn more about Harrison by visiting his website, at: http://lonestarbusinesslaw.com/.

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