Employer non-compete clause
A non-compete agreement prohibits an employee from competing with their former employer, whether it’s by working for a competing business, taking customers, poaching employees, or using confidential information or trade secrets.
Do non-competes hold up in Virginia?
Yes. Non-competes are legally enforceable in Virginia, provided they are: 1) narrowly tailored to protect the employer’s legitimate business interest, 2) don’t unreasonably prevent a former employee’s ability to earn a living, and 3) are not against Virginia public policy.
Omniplex World Servs. Corp. v. US Investigations Servs., 270 Va. 246, 249 (2005). If the non-compete cannot meet this 3-part test, a Court will find it to be legally unenforceable.
The first requirement, that a non-compete is narrowly tailored to protect the employer’s legitimate business interest, means that a non-compete can’t be broader than what is necessary to protect an employer’s business.
The legally protectable business interest can be the goodwill that the employer pays the employee to generate with the employer’s customers, or the confidential business information and trade secrets the employee has been entrusted with, but this isn’t an exclusive list of examples.
The second requirement, that it doesn’t unreasonably prevent a former employee’s ability to earn a living, can apply to how broad a non-compete is, or the length of time it lasts.
Below are some factors that Virginia courts analyze in determining whether a non-compete is enforceable:
Geographic scope: A non-compete that covers all of the United States when a company just operates in one state is geographically overbroad and likely unenforceable. Employers will want to only have a non-compete that covers their legitimate business territories.
Duties scope: The non-compete should only apply if the former employee takes a similar or identical position with a competitor.
A non-compete that just generally restricts an employee from working for any competitor of their former employer in any job is also overbroad, because it doesn’t specify what job the former employee would be doing, and it unreasonably prevents the employee from earning a living.
Length of time: Virginia courts have upheld employment non-competes up to 2 years post-employment. Based on our law firm’s review of hundreds of non-competes, most Virginia employers have 12-month non-competes. If a non-compete is included in a business sale, it can be enforceable for a longer period, up to 5 years.
In some states, a Court can “blue pencil,” or edit an unenforceable non-compete clause to make it enforceable. But Virginia law does not allow blue-penciling, and so Virginia employers will want to make sure their non-compete agreements are written in a narrow fashion only to protect their legitimate business interests, and not so broad that it would prevent their former workers from making a living after they leave.
How long is a non-compete good for in Virginia?
Virginia courts have upheld employment non-competes up to 2 years post-employment. If a non-compete is included in a business sale, it can be enforceable for a longer period, up to 5 years.
If an employer’s non-compete is for longer than 2 years, unless it is for the sale of a business, it will be held unenforceable. If the non-compete pertains to the sale of a business, the law supports a much longer time period, up to 5 years.
What can make a non-compete invalid?
A Virginia non-compete agreement needs to meet three requirements to be legally enforceable:
1) It must be narrowly tailored to protect the employer’s legitimate business interest;
2) It cannot unreasonably prevent a former employee’s ability to earn a living; and
3) It cannot be against Virginia public policy.
For the first requirement, your non-compete should be just narrow enough to protect your business and avoid being overbroad.
For the length of time, generally 12 months is standard for employment non-competes in Virginia. It should not exceed 2 years in order to be enforceable unless it’s for a business sale, in which case it can go up to 5 years.
You also want to limit the non-compete’s scope to the type of role that an employee was performing for your company, and nothing more, otherwise it will be overbroad and possibly unenforceable in court.
For example, if the non-compete clause prevents an employee from working for a competitor in any role whatsoever, that will be difficult to defend in court, and likely fail the first requirement that the restriction be narrowly tailored to protect your business.
For the second requirement, a non-compete can’t unreasonably prevent an employee from earning a living. Employers should be careful with the geographic scope of their non-competes, and only apply them to the geographic areas where the employee was performing, otherwise, it could unreasonably prevent the employee from working elsewhere.
Finally, the non-compete cannot violate public policy. An example of a non-compete that violates public policy is one that improperly classifies an employee as an independent contractor. See Reading & Lang. Learning Ctr. v. Sturgill, 94 Va. Cir. 94, 2016 WL 10880215 at *10-13 (Fairfax Cir. Ct. Aug. 4, 2016) (non-compete violated public policy due to employer’s misclassification of employee as independent contractor).
Misclassification of employees as independent contractors is a common way that employers create legal exposure for themselves.
Is a non-compete clause enforceable for low-wage employees?
No, non-compete agreements are not enforceable for low-wage employees in Virginia. A low-wage employee in Virginia, as of 2022, is an employee that makes less than $67,080 annually, or $1,290 weekly, according to the Virginia Department of Labor and Industry. These figures are updated annually in January.
The Virginia law that prohibits non-competes for low-wage employees is Virginia Code § 40.1-28.7:8, Covenants not to compete prohibited as to low-wage employees. The law also extends to interns, independent contractors, students, apprentices, and trainees.
Employers that violate this provision and still try to apply non-competes to low-wage employees can be sued in court by the affected worker and could be required to pay liquidated damages, lost compensation, court costs, and attorneys’ fees.
Also, employers that violate this law can also be subject to fines of up to $10,000 per violation by the state of Virginia.
Non-compete vs. Non-disclosure agreements
A non-compete agreement is a contract between an employee and their employer, which prohibits the employee from leaving their employer and going straight to work for a competitor’s company in a way that harms the former employer.
A non-disclosure agreement, or NDA, is broader; it’s a contract between two parties that requires confidentiality over particular topics, and in the employment context, usually prevents the worker from disclosing company secrets and confidential information.
More employers use NDAs than non-competes, because non-competes over recent years have been harder to legally enforce, and it’s commonplace for employers to use NDAs to protect their confidential business information.
NDAs are a good way to ensure that your corporate information is kept confidential and provide one way for you to take legal action if an employee is stealing company information or not keeping it secret.
Non-compete agreement law firm for employers
Because non-competes are generally disfavored by courts, and each year new cases and laws are created that further limit their application, it’s important to have a regular audit of your company’s non-compete to ensure they are enforceable and beneficial to your company.
The Lipp Law Firm is experienced in reviewing non-competes from all types of industries and can quickly and economically review your non-compete for legal enforceability. Contact our firm today to schedule a legal consultation to ensure that your company is legally compliant with Virginia non-compete law.
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