Virginia Non-Compete Law: In a recent hallway conversation on a campus emptied by the pandemic, I learned that my colleague Professor Linda Ficht is the author of one of the new employment laws enacted in the Commonwealth of Virginia. Professor Ficht explained to me how the idea of the law was born. A student was confused by the pre-employment packet for her internship. She asked her law professor to review a non-compete agreement. This prompted Prof. Ficht to research non-competes.
Prof. Ficht came to the conclusion that such contracts were illegal and should be outlawed in the case of low wage workers, such as interns and hourly employees. She found a sponsor for her bill in the Virginia Senate. It took several sessions (i.e. years) before it became law. Starting on July 1, 2020, employers may not enter into or enforce non-compete agreements with low-wage workers. As shared in a previous blog, this law is one of many new employment laws enacted this summer.
By the way, are you ready for the changes to your employee handbook and to add to your “It’s Law Posters”? If not, grab this checklist today. It’s not less overwhelming when you have a plan.
Professor Linda Ficht explains what Virginia employers need to know about the new limitations put on non-compete agreements:
The new non-compete law is meant to protect workers from contracts that unduly burden their ability to market their skills. The law broadly defines the term “worker” to include interns, students, apprentices, or trainees with or without pay in order to gain work or educational experience, in addition to low wage employees and independent contractors.
Businesses are still able to use non-compete agreements for workers that are not low wage earners, assuming they have a legitimate business interest to protect and the agreement is reasonable in time and scope.
The definition of low wage workers is based on the average weekly wage of the Commonwealth, as reported by the Bureau of Labor Statistics. This data changes every quarter. The current data, as of Q3 2019, for the average weekly wage is $1,125 for employees and $20.30 an hour for independent contractors. Given these wages run from roughly $56,000-$59,000 year over year, employers are well-advised to avoid non-compete agreements for workers below approximately $60,000 a year and keep an eye on the average wage data each quarter.
Also, it would be recommended to watch the length of these non-compete agreements to guard against a contract that was lawful when written, but later becomes unlawful when the data changes. This law does not apply to employees whose earnings are derived in whole or a predominant part from sales commissions, incentives, or bonuses.
Importantly, businesses can protect their legitimate business interests by having legal counsel draft confidentiality agreements and trade secret agreements. In terms of non-solicitation agreements, the law specifically states that a covenant not to compete shall not restrict an employee from providing a service to a customer or client of the employer if the employee does not initiate contact with or solicit the customer or client. Thus, the law bars an employee from directly soliciting the employer’s clients.
Businesses should understand the key provisions of the new law:
- The law has a notice requirement. The law requires employers to place notices in the workplace notifying workers that certain non-competes are banned. There is a civil penalty for violating this provision upon the second offense of no more than $250. A penalty of no more than $1,000 for subsequent offenses.
The Virginia Department of Labor and Industry (DOLI) will not create a poster. Employers will meet the posting requirement by putting a copy of the statute in a conspicuous location, probably next to the other “It’s The Law” posters.
- The law has an attorney fees provision. If an organization is successfully sued under this law for using banned non-compete agreements, they will face a court order to pay the worker’s reasonable attorney fees.
- The law has a $10,000 civil penalty per violation. Per violation would reasonably mean, every illegal contract the business executes with a barred employee is a separate violation. Thus, if a business were to write five illegal contracts, it is looking at a $50,000 fine, whether these contracts were entered into intentionally or in good faith.
- The law includes independent contractors. Most employment laws exclude this type of worker. Thus, it is very important that businesses recognize that independent contractors are covered by this new law. If the independent contractor earns less than the median hourly wage, currently $20.30 an hour, they may not be subject to a non-compete agreement.
The new law goes into effect on July 1, 2020, and is not retroactive. As with any new law, there may be issues raised that will need to be interpreted by the courts.
About the author: by: Linda S. Ficht, J.D., MBA is Assistant Professor of Business Law at Christopher Newport University, Virginia. She is the director of the pre-law program at the Luter School of Business. Her research area is in employment law.