By: Billy B. Ruhling II
Virginia has always allowed employers to impose reasonable restrictions on their employees’ ability to compete after the termination of the employment relationship. While this right was not unfettered, employers could take steps to protect their business by preventing a former employee from taking client relationships with them upon their departure. Such agreements were permitted so long as the restrictions were for a reasonable time and scope. But all of that is about to change for certain employees!
Effective July 1, 2020, Virginia has adopted a new scheme to protect certain workers’ right to work – even when doing so in direct competition with their former employer. The new legislation prohibits an employer from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee.” While the new statute does not limit an employer’s ability to require workers to sign agreements prohibiting the taking, misappropriating, or sharing of trade secrets or other proprietary/confidential information, it does alter the landscape significantly.
The new legislation defines a “covenant not to compete” as any agreement, including a provision in an employment contract, between an employer and an employee that restrains, prohibits, or otherwise restricts an individual’s ability to compete with his former employer following the termination of the individual’s employment. It further provides that such a covenant “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.”
As with all laws, the devil is in the details here. First, “low-wage” probably does not mean what most employers would think it means! Covered employees are those whose average weekly earnings are less than the average weekly wage in the Commonwealth as determined pursuant to subsection B of Va. Code § 65.2-500 (As of December 2019, the average weekly earnings amount was $1,113 or roughly $50,000 per year). The law also protects independent contractors if they are paid at an hourly rate that is less than the median hourly wage for the Commonwealth for all occupations as reported for the preceding year by the Bureau of Labor Statistics of the U.S. Department of Labor. It excludes, though, sales persons who derive their earnings, “in whole or in predominant part, from sales commission, incentives, or bonuses….” Second, the law provides a private right of action for covered individuals to sue their former employer or any other person who attempts to enforce a prohibited covenant.
These changes are significant. Employers who have or seek to enforce restrictive covenants should review their existing agreements to ensure they comply with the new legislation. If you have questions or concerns about whether your agreements comply with the new standards, the attorneys at DiMuroGinsberg, P.C. stand ready to assist you!