Virginia Continues Sweeping Employment Reforms

April 23, 2020

Although Virginia’s recent amendments to its Human Rights Act have garnered the most media attention, Gov. Ralph Northam has also signed or proposed amending several other laws that will significantly impact Virginia employers. Most notably, Gov. Northam signed a new law prohibiting employers from entering or enforcing noncompetition agreements with certain employees, strengthened protections for employees protesting illegal activity or cooperating with law enforcement, and proposed that the first in a series of increases to the state minimum wage take effect on May 1, 2021.

New Noncompete Restrictions

Virginia has always disfavored noncompete agreements, and will enforce only restrictions that are narrowly tailored to protect employers’ interests. Beginning July 1, 2020, however, a new law prohibits employers from entering or attempting to enforce any noncompetition agreements with “low-wage employees,” defined to include employees whose average weekly earnings are less than the average weekly wage in Virginia.

According to the most recent data available from the Virginia Employment Commission, the commonwealth’s average weekly wage was $1,125 per week, or about $58,500 per year. The statute does not specify the applicable date at which employers should look at the average weekly wage, which changes quarterly. Therefore, it is possible that a noncompete that is otherwise enforceable under this law when entered could become unenforceable due to changes in the average weekly wage.

“Low-wage employees” affected by this statute also include interns, students, apprentices or trainees employed “in order to gain work or educational experience,” as well as independent contractors who receive hourly compensation that is less than the overall median hourly wage for the state. However, employees whose earnings come “in whole or in predominant part” from commissions, incentives or bonuses are not covered by this law, meaning that depending on an employer’s compensation structure, restrictive covenant agreements with sales employees may still be allowable.

Under this new law, a prohibited “covenant not to compete” is any contractual provision that “restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his former employer.” What it means to “restrict” an individual’s “ability ... to compete” is unclear, but it appears that the legislature intended for the statute to limit both traditional “noncompete” clauses and “nonsolicitation” provisions. The law specifically notes that employees must be allowed to continue servicing former clients or customers under any “covenant not to compete” so long as the employee “does not initiate contact with or solicit” the customer or client. Employers may, however, still enter confidentiality agreements with employees to protect trade secrets or other confidential information.

This new law also grants affected employees a new private right of action. Any covered employee can sue to prevent his or her employer from enforcing a prohibited restrictive covenant. In addition to obtaining injunctive relief, employees can obtain liquidated damages, lost compensation, damages and attorneys’ fees and costs. The law also prohibits employers from retaliating against employees who bring such suits. In addition, employers may be liable for a civil penalty of $10,000 per violation for entering, enforcing or threatening to enforce any prohibited restrictive covenant.

Stronger Anti-Retaliation Protections

On April 11, Gov. Northam signed a new law that prohibits employers from taking any retaliatory adverse action against employees who engage in certain protected activity. Federal law has long protected “whistleblower” employees who protest certain federally prohibited practices, such as racial discrimination, but this new statute goes far beyond any prior statute. Specifically, the new law protects any employee who:

  • reports any violation of any federal or state law or regulation;
  • receives a request to participate in a government investigation or inquiry;
  • refuses to engage in an act that would subject the employee to criminal liability;
  • refuses an employer’s order to perform an action that violates any federal or state law or regulation, provided the employee explains his or her reasoning to the employer; or
  • testifies or otherwise provides information in connection with a governmental or law enforcement investigation, hearing or inquiry into the employer’s alleged violation of any federal or state law.

Employees who believe they have been retaliated against may sue their employer and may recover lost wages, benefits and “other remuneration,” along with injunctive relief, interest and attorneys’ fees and costs. Retaliation complaints are already ubiquitous — retaliation allegations comprised over half of all charges received by the Equal Employment Opportunity Commission last year. Under the new law, an employee seeking protection need not file a charge — he or she may go straight to court. Given the difficulty of obtaining summary judgment in Virginia state court, the burden on employers seeking to avoid or contest retaliation complaints will be even higher.

Other Pending Legislation

Several other new employment laws await Gov. Northam’s signature but may be amended before they are enacted into law. In light of the economic crisis created by COVID-19, Gov. Northam proposed an amendment to Senate Bill 548 to authorize a temporary work-sharing program in Virginia. Work-sharing programs help businesses avoid layoffs by permitting employees with reduced hours or wages to receive unemployment benefits in the form of an approved short-term compensation plan. Gov. Northam’s proposed amendment would require the Virginia Employment Commission (VEC) to establish and implement the work-sharing program by Jan. 1, 2021. Employers who wish to participate in the program would be required to complete a written application certifying, among other things, that the aggregate reduction in employee work hours is in lieu of temporary or permanent layoffs.

Aside from the work-sharing program, Senate Bill 548 would revise various provisions of Virginia unemployment insurance, including qualifications and other requirements for employers. Among other changes, employers of all sizes would be required to file their quarterly payroll and tax reports on an electronic medium using a format prescribed by the VEC. Under current law, employers with fewer than 100 employees are not required to file electronically.

In addition, Gov. Northam has proposed pushing out the effective date of several other bills passed by the General Assembly. The most anticipated of these laws is House Bill 395/Senate Bill 7, which raises the minimum wage in Virginia. As it is currently written, the bill provides for the following increases:

  • Jan. 1, 2021 — $9.50 (31 percent increase from the current minimum wage of $7.25)
  • Jan. 1, 2022 — $11.00
  • Jan. 1, 2023 — $12.00
  • Jan. 1, 2025 — $13.50
  • Jan. 1, 2026 — $15.00

Now, rather than having the first increase go into effect Jan. 1, 2021, Gov. Northam is proposing it be delayed until May 1, 2021. The other dates would remain the same.

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