Virginia Ban on Non-Competes for “Low” Wage Employees

Josh SchmandJosh Schmand

Along with a number of other employer friendly laws passed this summer (Values Act and Wage Theft Law), Virginia has joined Maryland in prohibiting non-compete agreements with certain “low” wage workers.

What is a non-compete agreement?

Under the new law, a “covenant not to compete” or non-compete agreement is an agreement 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/her former employer.

Which employees are considered “low” wage earners?

Who is a “low” wage earner is a bit of a moving target. The new law defines a “low-wage employee” as an employee whose average weekly earnings during the previous 52 weeks (or if an employee worked fewer than 52 weeks, the average weekly earnings for the number of weeks that the employee worked) are less than the average weekly wage in the Commonwealth as determined by the Virginia Employment Commission (VEC). The VEC may issue a new average weekly wage as frequently as every quarter; recently the VEC calculated the average wage as $1,204 per week or $62,608 per year. This means that a non-compete that was enforceable when entered could violate the new law when employers attempt to enforce it if the employee now qualifies as a “low” wage earner.

Interns, students, apprentices, or trainees are all considered “low” wage earners. As are independent contractors making an hourly rate less than the median hourly wage for all jobs over the past year in the Commonwealth, as determined by the Bureau of Labor Statistics of the U.S. Department of Labor, which was recently calculated at $20.30 per hour.

The new law does not cover employees that earn their salary predominantly through sales commissions, incentives, or bonuses.

What is prohibited by the new law?

Employers are prohibited from entering into, enforcing, and even threatening to enforce non-compete agreements with any “low” wage employee from July 1, 2020 going forward. This means that non-compete agreements that were entered into before July 1, 2020 are safe, but employers should consult counsel before enforcing or threatening to enforce those agreements.

By its terms, the new law does not apply to similar contracts, such as confidentiality or nondisclosure agreements, that protect employers’ trade secrets and confidential or proprietary information.

The new law leaves some grey area regarding when it applies to non-solicit agreements with customers, so employers should review client non-solicitation agreements with counsel to ensure compliance.

The new law does not address other types of employment restrictions, such as prohibitions against the solicitation of employees.

What are the penalties?

Employers are subject to a civil penalty of $10,000 for each violation of the new law, as well as private rights of action. In addition to lost compensation that can be awarded in a lawsuit, a “low” wage employee is entitled to recover reasonable costs, including attorneys’ fees, from employers that enter into, enforce, or threaten to enforce a non-compliant non-compete agreement.

Are there other requirements for employers?

Employers must post a copy or summary of this new law with its other required posters. Failure to comply with the posting requirements will subject employers to a written warning for the first violation, a penalty of up to $250 for a second violation, and a penalty of up to $1,000 for a third and each subsequent violation.

Is D.C. next?

D.C. has introduced a similar ban on non-competes for low wage employees.

For more information, contact Josh at 301-347-1273 or jcschmand@lerchearly.com.