By: Billy Ruhling
Virginia has always allowed you to impose reasonable restrictions on your employees’ ability to compete after the termination of the employment relationship. While this right was not unfettered, you could take steps to protect your business by preventing a former employee from taking customers or clients 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 or has changed] for certain of your employees!
The New Law
Effective July 1, 2020, Virginia has adopted a new scheme to protect the right to work of certain workers – even when doing so in direct competition with your business. The new legislation now prohibits you from entering into or enforcing a non-compete with any “low-wage employee.” Further, you may not prevent such 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 you may think it means! Covered employees are those whose average weekly earnings are less than the average weekly wage in the Commonwealth. As of December, 2019, the average weekly earnings was $1,113 or roughly $50,000 per year.
Second, the law protects more than just employees. Independent contractors whom you pay at an hourly rate that is less than the median hourly wage in the Commonwealth for all occupations also are generally covered. That amount is presently $20 per hour. There is an exclusion to this requirement for your independent contractors, however. That exclusion is or sales persons who derive their earnings, “in whole or in predominant part, from sales commission, incentives, or bonuses . . . .”
Third, the new statute does provide some protections for your business. You still have the right to require your employees, even “low-wage” workers, to sign agreements prohibiting them from taking, misappropriating, or sharing your trade secrets or other proprietary/confidential information.
These changes to Virginia’s general approach to non-competes are significant for all Virginia employers. If you are planning to have your new employees sign non-compete agreements, you need to make certain that they do not fall into the category of being “low-wage.” If you are seeking to enforce any existing agreements, you also need to ensure they comply with the new legislation. You don’t want to run afoul of the new statutory limitations. That’s because the law allows persons protected by the statute to sue you or any other person who attempts to enforce a prohibited covenant.
To avoid being the subject of a lawsuit, you should consult with experienced employment counsel to review your existing agreements and answer any questions or concerns about whether they comply with the new standards.