Non-Compete Agreements

In the Commonwealth of Virginia, non-compete agreements have long been a topic of considerable debate and scrutiny, as they often directly impact the delicate balance between an employer’s interest in protecting its business assets and an employee’s right to secure gainful employment.

What is a non-compete agreement?

A non compete clause is a part of a legally binding contract, also known as a restrictive covenant. They are designed to prevent employees from working for competitors or starting competing businesses within a specified geographical area and period of time after leaving their current employer.

While Virginia courts have historically been willing to enforce non-compete agreements, they have also demonstrated a strong inclination to strike down overly broad or unreasonable provisions, thus necessitating a thorough understanding of the state’s legal landscape to craft enforceable non-compete clauses that are equitable for all parties involved.

Virginia now limits an employer’s ability to bind its low-wage employees and independent contractors to non-competes. Non-compete clauses restrict an employee from working for a competitor’s company after quitting or being terminated from their job.

What is the purpose of a non-compete agreement?

Non-compete agreements protect employers’ business interests by preventing former employees from competing or sharing sensitive information. The agreements secure trade secrets, client relationships, and employee training investments.

An employer non-compete clause in an employment contract limits employees’ work in specific industries, locations, and time periods. Such limitations reduce unfair competition, client loss, and proprietary information leaks.

To be enforceable in Virginia, non-compete clauses must balance employer interests and employees’ rights to earn a living.

What is restricted under the Virginia non-compete law?

The restriction must be: (1) narrowly drafted “to protect the employer’s legitimate business interest”; (2) cannot be “unduly burdensome on the employee’s ability to earn a living”; and (3) is not against clear Virginia public policy. Update, Inc. v. Samilow, 311 F.Supp.3d 784, 788 (E.D.Va. 2018).

To assess whether a restriction is legally enforceable under these factors, Virginia courts will consider the restriction’s purpose, geographic scope, and duration.

Also, Virginia, like many states, prohibits using non-compete clauses against low-wage workers who make less than Virginia’s average weekly wage (currently $1,343 per week, as of January 17, 2023, or approximately $69,836 annually).

What is the new non-compete law in Virginia?

Passed in 2020, the new law prohibits employers from entering, enforcing, or threatening to enforce a non-compete clause for a low-wage employee. A low-wage employee is one who makes less than the average weekly wage of the Commonwealth, which was $1,343 as of January 17, 2023.

The law also applies to independent contractors making less than the median hourly wage in the Commonwealth, presently just under $22.69 per hour, as of March 31, 2022.

Under Virginia law, can an employee sue their employer for a non-compete?

Yes. The new law creates a private right of civil action for workers whose employers enforce or threaten to enforce a covered non-compete clause and allows successful plaintiffs to recover their legal costs and fees, as well as liquidated damages.

The new law further provides for a $10,000 civil penalty for employers who violate the law, meaning that even asking a covered worker to sign a non-compete clause can carry legal exposure.

What can Virginia employers with non-competes do to protect themselves?

Virginia employers should have narrow non-competes that are only limited to protect their legitimate business interests and not create an undue burden for employees to gain employment elsewhere after they switch jobs.

Generally, courts will look at the non-compete clauses’ duration, purpose, and its geographic scope in determining whether it is narrowly tailored to protect the employer’s business and doesn’t create an undue burden on employees when seeking new roles.

A non-compete contract of 1-2 years in the context of at-will employment is normally reasonable under Virginia common law. During a business sale, non-competes of up to 5 years can be enforceable.

The function or purpose of the noncompete clause is analyzed by the court to determine if it’s enforceable. Virginia courts will look at why the non-competition agreement exists. For example, to protect a specific customer base or line of business that the employer puts substantial resources into.

The courts will balance the restriction’s business purpose with the employee’s right to earn a living. They will look at the possible harm a restriction may cause an employee if they cannot get another job or earn a living.

Finally, the geographic scope of the non-compete is considered. The employer must have a business reason for the geographic scope of their restriction. Employers that try to have worldwide non-competes are going to have a tough time defending why they need such a broad restriction.

Virginia Employment Lawyers

Employees whose standard contracts include a non-compete, non-servicing, or non-solicit agreement should contact the experienced employment attorneys at The Lipp Law Firm, PC, to audit these clauses for compliance with Virginia law.

What About DC Noncompete Laws? Are Noncompetes Enforceable in DC?

On October 1, 2022, DC enacted a law making it illegal for employers to impose noncompete policies or clauses (noncompetes) on District employees who make under $150,000 per year (or $250,000 a year for medical specialists). So, for many DC employees, the answer is no.Noncompetes are still enforceable for employees with incomes above the threshold, but now have limitations and require employers to provide advance notice. Not sure if your noncompete in DC is enforceable? Learn more about DC noncompete laws here.