Are Non-Compete Agreements Lawful in Virginia? In the 35 years that I have represented Virginia businesses and executives in workplace matters and litigation, I have lost count as to the number of times I have heard someone say words to the effect that non-compete agreements are “unlawful” in Virginia. (Spoiler alert: they can be lawful.) This article provides answers, and an update. As a General Statement, Non-Compete Agreements may be Valid in Virginia if Narrowly Tailored to Prevent Direct Competition.
GUEST COMMENTARY By Todd Leeson, Gentry Locke Executive Summary: Be wary of oversimplifying your understanding of non-competes.
It is true that restraints against competition are not favored in Virginia. They may be enforceable, however, when the agreement is “narrowly drawn to protect the employer's legitimate business interest, is not unduly burdensome on the employee's ability to earn a living, and is not against public policy.” Omniplex World Servs. Corp. v. US Investigations Servs., 270 Va. 246, 249 (2005). In evaluating these factors, courts consider the function, geographic scope, and duration of the restriction. The function element is assessed “by determining whether the prohibited activity is of the same type as that actually engaged in by the former employer.” Home Paramount v. Schaffer, 282 Va. 412, 416 (2011). In other words, where the restriction only precludes the employee from doing competing work (as opposed to doing any work for a competitor), it is generally enforceable. Enforceable restrictions prohibit an employee from engaging in activities that actually or potentially compete with the employee’s former employer. Courts evaluate these cases on their own merits, equities, and context. But the above concepts provide the framework for the types of non-compete agreements that may be enforceable in Virginia. But Wait—There is a Virginia Law that Invalidates Non-Compete Agreements with So-Called “Low-Wage Employees.” I blame Jimmy John’s. In October 2014, the national media reported that Jimmy John’s required all its employees to sign non-compete agreements. “It’s one thing for a high paid exec to be prohibited from working at a competitor. But Jimmy John’s actually imposes non-compete clauses on its low-wage workers.” Jimmy John’s Under Fire for Worker Contracts, CNN Money (October 22, 2014). As the public policy evolved, in October 2016, the Obama Administration issued a “call to action” urging state policy makers to enact reforms to reduce the prevalence of non-compete agreements, especially those imposed upon so called “low-wage workers.” In 2020, Virginia responded. Virginia enacted a law that prohibits employers from entering into, enforcing, or threatening to enforce, a covenant not to compete with a “low-wage employee.” (The law does not apply to agreements in effect prior to July 1, 2020.) A covenant not
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