Virginia Broadens Applicability of Non-Compete Prohibition

07.01.2025

Effective July 1, 2025, employers in Virginia will be prohibited from entering into non-compete agreements with employees who are non-exempt under the Fair Labor Standards Act (FLSA).  This change expands Virginia’s existing prohibition on non-competes with “low-wage employees.”

Background

In 2020, Virginia Code Section 40.1-28.7:8 went into effect, which prohibited employers from entering into, enforcing, or threatening to enforce  non-compete agreements with “low-wage employees.”  The 2020 law defined “low wage employee,”  in relevant part, as employees whose average weekly earnings for the preceding year are less than the average weekly wage of employees in the Commonwealth.  For the calendar year, 2025, a “low wage employee” includes any employee whose average weekly earnings are less than $1,463.10 per week.  

The Amendment

Effective July 1, 2025, the Virginia General Assembly expanded the definition of “low wage employee” to include all non-exempt employees, regardless of income level.  As a result, a non-exempt employee who makes more than the average weekly wage set forth in the statute will still be covered by the law, as amended.  Notably, the new definition will not apply retroactively and thus will not impact non-compete agreements entered into before July 1, 2025.

The Dangers of Noncompliance

The expanded definition of “low wage employee” brings more potential for liability under Virginia Code § 40.1-28.7:8, which already imposes severe consequences for non-compliance .  Remedies available to affected employees include injunctive relief, recovery of lost compensation, damages, and the employee’s reasonable attorneys’ fees and court costs.  The statute also allows the Virginia Department of Labor and Industry to issue civil penalties of $10,000 for each violation.  Other lesser civil penalties may be issued for an employer’s failure to post the statute, or an approved summary of the statute, where other employee notices required by state and federal law are posted.

Next Steps

Given the expanded coverage, employers should consider conducting a review of their employee exemption classifications under the FLSA to ensure they have an understanding of the scope of applicability of this expanded prohibition.  Employers should also review existing form employment, restrictive covenant, severance, and other agreements to ensure that even high-earning non-exempt employees are not furnished with prohibited non-competes.