Virginia has passed non-compete reform, banning non-compete agreements for certain low and middle income workers. The state joins several others that have recently enacted new laws intended to curb non-compete abuse. Between 1990 and 2015, America experienced an explosion in the use of abusive, clearly illegal non-compete agreements and related litigation. Companies use such agreements to eliminate ordinary competition, restrict employee mobility, and ultimately suppress wages. Certain corporate lawyers and large law firms generate millions of dollars in revenue every year from practices dedicated to “non-compete enforcement.”
Over the past several years, elected officials at both state and national levels have expressed concern over the rampant use and abuse of non-compete agreements. Efforts at reform have faced tremendous resistance from corporate interests and certain lawyers— who are financially motivated to continue the culture of non-compete agreements for everyone, everywhere. But the situation has reached a breaking point. There is widespread public outcry over abusive non-compete lawsuits against low-wage employees like janitors, factory workers, and security guards. Academics – particularly economists – have begun observing how non-compete abuse distorts the labor market and suppresses wages. The Department of Justice – Antitrust Division has recently expressed its concern over non-compete abuse. And the FTC has held hearings on non-compete reform.
Recognizing that corporate non-compete abuse must end, Virginia – like several other states – has passed reform. Under Virginia’s new law, non-compete agreements are banned for all workers who earn lower than the average prevailing weekly wage in the state. As of right now, that amounts to about $62,000 annually. The Virginia Employment Commission will issue new guidance every quarter regarding the wage threshold. So a non-compete agreement that is legal today might become illegal tomorrow unless the employee receives a raise. The new law also covers independent contractors, trainees, interns, and apprentices, but at a lower salary threshold (i.e. the average hourly rate in the state per data from the Bureau of Labor Statistics). One significant gap in the new law: Employees whose compensation is predominately based on sales commissions or bonuses are not covered.
The new Virginia statute is also noteworthy because it has teeth: If an employer violates the law by threatening to enforce an illegal non-compete agreement, the employee can bring a lawsuit and seek an injunction, liquidated damages, lost compensation, attorneys’ fees and costs.
Not only that, but employers who defy the law are subject to a fine of $10,000 for each violation. Many companies are habitual non-compete abusers. In Virginia, those companies could quickly find themselves racking up large fines.
The big fight will be over whether or not the statute can be applied retroactively. By its terms, the new law applies to all agreements entered into on or after July 1, 2020. But many employment agreements are renewed or amended. You can expect lots of lawsuits challenging non-compete agreements in Virginia over the next few years.
Jonathan Pollard is an attorney, expert witness, writer, and business consultant based in Fort Lauderdale, Florida. He is widely regarded as an expert on non-compete law. Pollard has extensive experience serving as litigation, arbitration, or consulting counsel in a wide range of non-compete, trade secret, antitrust, false advertising, and unfair competition matters. He has appeared in or on the New York Times, Bloomberg, PBS News Hour, The Guardian, Inc. Magazine, FundFire, Law360, Litigation Commentary & Review, and more. His office can be reached at 954-332-2380.