Virginia Expands Restrictions Against Employee Non-Competes

Last week, Virginia Gov. Abigail Spanberger signed into law SB 170, which applies to employees who were terminated and not offered severance unless they were terminated for cause. The new law expands the Commonwealth's prior prohibition on covenants not to compete for "low wage employees" to a broader group of employees. The new law goes into effect July 1, 2026. It applies only prospectively and does not invalidate agreements entered into, amended or renewed prior to July 1, 2026.

Expansion of Virginia's Non-Compete Limitations

Previous statutory provisions invalidated non-compete provisions for "low wage employees" – i.e., those earning less than the average weekly wage in Virginia, currently $1,507.01 or $78,364.52 per year, as well as employees categorized as nonexempt under the Fair Labor Standards Act (FLSA). The new law expands on these provisions and prohibits the enforcement of covenants not to compete where "such employer discharges such employee from employment without providing severance benefits or other monetary payment to such employee, unless such employer discharges such employee for cause." The new law further provides that "[s]uch severance benefits or other monetary payment shall be disclosed upon execution of the covenant not to compete."

So, for employees who are let go or discharged without "cause" – an undefined term in the statute – their covenant not to compete will not be enforced unless the employer provided for some "severance benefits or other monetary payment" in the executed non-compete. The statute does not define what severance benefits or monetary payment must be offered, thus raising the question of how much severance is "enough" to satisfy the statute. Also, the law appears to prohibit an employer who terminates an employee without cause to offer the employee some monetary consideration later to enforce his/her non-compete unless the covenant itself, when executed, provided in advance for such severance or payment.

Given the critical nature of what circumstances justify a termination "for cause" and what "severance benefits or other monetary payment" justifies a non-compete clause, employers should carefully consider existing agreements and consult with counsel when analyzing covenants not to compete under this new statute.

Exclusions Under the Law

The following employees fall outside of the statute:

• employees with covenants not to compete entered into before July 1, 2026
• employees with covenants not to compete who resign
• employees with covenants not to compete who are terminated "for cause"
• employees with enforceable customer non-solicitation agreements, as the statute retains its definition of "covenant not to compete" to exclude restrictions for an employee who "initiate[s] contact with or solicit[s] the customer or client"¹
• non-disclosure agreements (NDA) or other enforceable confidentiality agreements with employees, as the statute provides that "[n]othing in this section shall serve to limit the creation or application of nondisclosure agreements intended to prohibit the taking, misappropriating, threatening to misappropriate, or sharing of certain information to which an employee has access, including trade secrets, as defined in § 59.1-336, and proprietary or confidential information."

Enforcement and Remedies

As with the prior prohibition against "low wage employee" non-competes and those applying to nonexempt employees, the statute now provides for the same enforcement remedies for this expanded group of employees who are discharged without cause and without severance or other monetary payment provided for in their non-compete, including:

An employer in violation of the provisions prohibiting noncompetition agreements with low-wage employees and employees terminated without cause and without receiving severance pay or other prior disclosed monetary compensation shall be subject to a civil penalty of $10,000 per violation, plus reasonable costs and attorney fees.

Next Steps

• Revise Non-Compete Provisions: Employers should review and potentially revise their non-competition agreements applicable to employees located in Virginia to ensure compliance with the new restrictions. They also should consider including a definition of "for cause" terminations in agreements with non-compete provisions.
• Comply with Posting Requirements: Employers will be required to post a copy of the statute or a summary approved by Virginia's Department of Labor and Industry in the same location where other employee notices required by state or federal law are posted.
• Evaluate Termination Practices: Employers should review policies and procedures for employee terminations to ensure that appropriate severance or monetary payment mechanisms are in place for without-cause employment terminations.
• Evaluate NDA and Trade Secret Enforcement: Finally, employers should be mindful of reviewing employee compliance with applicable NDAs/confidentiality agreements and protection of trade secrets in connection with employee departures, as protection of an employer's confidential and proprietary information – as well as enforcement of an employee's fiduciary duty – are excluded from this new law.

Notes

¹ Sentry Force, Security, LLC v. Barrera, 2026 WL 200848, (Va. Ct. of Appeals, Jan. 27, 2026) ("[A]ccording to the plain language of the "covenant not to compete" definition in Code § 40.1-28.7:8(A), [employer] can enter into agreements with its employees that bar those employees from soliciting [employer'] customers (once those employees leave [employer])"). Notably, the court in Barrera held that employers 1) can enforce customer non-solicitation clauses that restrain low-wage workers from directly soliciting a customer but 2) cannot enforce customer non-solicitation clauses that restrain low-wage workers from accepting unsolicited business from a customer and 3) cannot enforce employee non-solicitation provisions for "low wage" workers.