Guidance on New Non-Compete Threshold

02.21.2024

As Virginia employers should know, the Virginia General Assembly passed legislation in 2020 banning covenants not to compete with “low-wage employees.”  This law, found at Virginia Code Section 40.1-28.7:8, came into effect on July 1, 2020 and only applies “to covenants not to compete that are entered into on or after July 1, 2020.” It defines a covenant not to compete as “a covenant or agreement, including a provision of a contract of employment, between an employer and employee that restrains, prohibits, or otherwise restricts an individual's ability, following the termination of the individual's employment, to compete with his former employer.”  The statute further 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.”  The statute also does not forbid nondisclosure agreements intended to prohibit the misappropriation of trade secrets and proprietary or confidential information.

The core definition of “low-wage employee,” which determines which workers are covered by the law, is based on the average weekly wage of the Commonwealth of Virginia, and thus varies from year to year.  In 2023, “low-wage employees” included employees making less than $1,343 per week, approximately $69,836 per year. 

On January 16, 2024, the Virginia Department of Labor and Industry announced that the new threshold for low-wage employees for 2024 is $1,410 per week, approximately $73,320 per year.  This new threshold means that employers cannot enter into a covenant not to compete with any employee who makes less than $1,410 per week.  Furthermore, even if the agreement was signed after July 1, 2020, during a time in which the employee did not qualify as a low-wage employee, an employer may not enforce or threaten to enforce the covenant against a worker who now qualifies as a “low-wage employee” under the new threshold.

Given this change in the wage threshold for employee coverage, Virginia employers should make sure they are using the new wage level of $1,410 per week in evaluating whether to enter into or enforce a covenant not to compete.