Effective July 1, 2026, Virginia employers will be further restricted in their ability to implement non-competition agreements with their workers.
Virginia SB 170, signed into law on April 13, 2026, expanded the class of employees against whom non-competes are unenforceable and introduced new severance requirements for otherwise valid non-competes entered into by Virginia workers.
Notably, non-competes entered into prior to July 1, 2026 and which were otherwise valid when entered into are not affected by the new law; however, any amendments or renewals to such agreements on or after July 1, 2026 would require compliance with SB 170’s new restrictions.
Expansion of Class of “Exempt” Workers
As we reported previously, Virginia made changes in 2025 to its prohibitions on non-competes entered into by “low-wage employees.”
The 2025 legislation effectively prohibited employers from entering into noncompetition agreements with any worker who was not an “exempt” employee under the Fair Labor Standards Act (“FLSA”) and who was not paid a statutorily defined minimum wage (which for 2026 is $1,507.01 per week or $78,364.52 annually). This threshold is adjusted each year. The effect of the 2025 law was to greatly expand the class of workers against whom non-competition agreements were prohibited and unenforceable.
SB 170 goes further by prohibiting enforcement of non-competes against any employee, regardless of compensation, when the employee is discharged by the employer without “cause” unless the employee is entitled to severance benefits or other monetary payment. The rights to benefits or payment must be disclosed at the time of entry into the covenant not to compete. Employers who downsize or lay off employees, or who otherwise terminate employees other than for a “cause” event, are therefore precluded from enforcing non-compete agreements against such workers, unless the employer explicitly agreed to provide severance benefits or other monetary payment at the time of entering into the non-compete. This new expansion of the law applies even to highly paid workers, including executives, who are otherwise “exempt” workers under the FLSA.
Now comes the fun part (at least for us lawyers) – the new law does not define what constitutes “cause” in connection with an employee termination, and likewise does not define what amount of “severance benefits or other monetary payment” would be required to make a non-compete enforceable. Future legislative changes, regulations, and judicial interpretation will be needed to clarify this somewhat infuriating oversight in the law. In the interim, however, employers entering into covenants not to compete would be well-advised to expressly define what constitutes “cause” for termination in their written agreements, and to offer some meaningful severance benefits or cash payment to employees upon termination without “cause” (which, taking a conservative view, should consider an affected employee’s particular earnings and benefits and be more than some nominal amount).
What is a “Covenant Not to Compete” Under Virginia Law?
A traditional “non-compete” provision prohibits an employee from working for any competitor. Over time, judicial decisions limited enforcement of these restrictions to what was reasonably required for the employer’s protection of its business by requiring reasonable geographic scopes and reasonable periods of time.
Over the past two decades, these types of non-competition covenants have been increasingly disfavored by legislatures in many jurisdictions, and new laws have, in turn, increasingly protected low-wage and unskilled workers from these types of restrictions altogether. Employers have largely responded by foregoing these traditional non-compete restrictions in favor of restrictions prohibiting solicitation of customers, clients, and employees. These “non-solicitation” restrictions do not prohibit employees from working for competitors or starting their own competitive enterprises – rather, non-solicitation restrictions are designed to prohibit former employees from benefitting from particular relationships gained during the course of employment to the detriment of that employer later on.
Virginia’s law, however, is broader than it may seem. The Virginia statutes expressly state 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.” Virginia therefore distinguishes between employees affirmatively trying to exploit client relationships through direct solicitation and situations where clients and customers affirmatively seek out those former employees for goods and services on their own. Recent Virginia case law (Sentry Force Sec., LLC v. Barrera, 2026 Va. App. LEXIS 54, *22, 2026 LX 11348, 2026 WL 200848, Unreported) has interpreted this statutory language to mean that an agreement that prohibits only affirmative solicitation of clients and customers by a former employee is NOT a “covenant not to compete” and therefore falls outside of the statutory prohibitions. On the other hand, a provision that prohibits both an employee’s affirmative solicitation of customers and acceptance of solicitations initiated by clients and customers would fall squarely within the statute’s prohibitions and would be void and unenforceable in all instances.
Action Items for Employers with Virginia Employers
Virginia employers should undertake a review of their form restrictive covenants to determine whether their inclusion is limited to employees who are not “low-wage” workers in the first instance.
Employers should also undertake a review of all existing agreements that include client non-solicitation provisions to ensure that those are enforceable under existing Virginia law.
For any new agreement on or after July 1, 2026, containing a “covenant not to compete,” employers should clearly define “cause” for termination and consider what severance benefits or payment may be appropriate for non-“cause” terminations to make such provisions enforceable under the new law.
Are you a business owner who would like a review of your documents to make sure you are in compliance with the “alphabet soup” of state and local employment laws, compensation laws, and tax laws? Contact business and tax practice chair Tim Canney at tcanney@bulmandunie.com or (301) 656-1177 x331.
