Since July 1, 2020, Virginia has prohibited employers from entering into, enforcing or threatening to enforce non-compete agreements with “low wage employees.” The definition of “low wage employee” periodically changes because it is dependent upon the Commonwealth’s average weekly wage.
On Jan. 16, 2024, the Virginia Department of Labor and Industry announced that the average weekly wage for 2024 would be $1,410. As a result, employers are now prohibited from entering, enforcing or threatening to enforce a non-compete agreement with an employee who earns less than $73,320 per year. The law does not apply to an employee whose earnings are derived, in whole or in predominant part, from commissions, incentives or bonuses.
The new threshold represents an increase of approximately $3,500 from the previous threshold of $69,836, and an increase of about $14,820 from the bill’s passage in 2020.
The law applies to non-competes entered into on or after July 1, 2020, but the prohibition extends to “enforcing” or “threatening to enforce” non-competes against low wage employees. Therefore, some agreements formed between July 1, 2020, and the present may no longer be enforceable against employees who make less than $73,320 per year. For that reason, employers should carefully review a Virginia employee’s average weekly earnings before attempting to enforce a non-compete or entering into a new non-compete. In addition, employers should consider reviewing existing non-compete agreements to determine the extent to which changes in pay and/or the terms of an agreement may be necessary to ensure their future enforceability.
Penalties for violating Virginia’s non-compete law can be steep. Aggrieved employees can file suit seeking injunctive relief, liquidated damages, lost compensation, damages, and attorneys’ fees and costs. Employers also may be liable for a civil penalty of $10,000 per violation.
Virginia is one of 12 jurisdictions that prohibit non-competes for low wage earners, including Colorado, the District of Columbia, Illinois, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island and Washington. Each jurisdiction has a different definition of “low wage earner.” In addition, California, Oklahoma, Minnesota and North Dakota prohibit or mostly prohibit all non-competes with limited exceptions.
In the past year, the push to limit non-competes extended beyond the state level and became a focus of federal agencies. On Jan. 5, 2023, the Federal Trade Commission proposed a new rule that would ban non-compete agreements between employers and employees in most circumstances and require employers to rescind any existing non-compete agreements with current and former employees. If finalized, the rule almost certainly will be subject to legal challenge. The National Labor Relations Board (NLRB) also targeted non-competes in 2023. In a memo, NLRB General Counsel Jennifer Abruzzo expressed her opinion that most non-competes violate the National Labor Relations Act.
Employers are well advised to conduct regular audits of agreements that contain post-employment restrictions such as non-competes and non-solicits. For questions about these topics, or any aspect of labor and employment law, please contact the authors of this article or any member of the firm’s labor and employment team.