For years, companies have required that new employees sign covenants not to complete as a way blocking them from seeking work with competitors. If taken to an extreme, these provisions can substantially limit employment opportunities for workers in their chosen field within their own locality. As of 2020, Virginia law now protects “low wage” employees from being restricted in their future employment.
As defined by the statute, a “covenant not to compete” means a covenant or agreement, including a provision of a contract of employment, between an employer and employee that restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his former employer. the new lay strictly prohibits employers from requiring or enforcing non-competes for low wages employees and provides a private cause of action for violations.
A “low wage employee” means an employee whose average weekly earnings are less than the average weekly wage of the Commonwealth as determined pursuant to subsection B of § 65.2-500. In 2022, that number was set at $1,290 or $67,080 annually.
Not everyone is covered by the new law. Besides those who earn in excess of the threshold, the law does not cover persons whose earnings are derived primarily from sales commissions, incentives, or bonuses paid to the employee by the employer. The law also does not apply retroactively to persons who signed non-competes prior to 2020.
Virginia Code Section 40.1-28.01 was passed in 2019 to prohibit any provision in a nondisclosure or confidentiality agreement that has the purpose of concealing the details of a sexual assault. The new section is not retroactive, but it does ensure that employers will not be able to rely upon non-disclosure agreements to conceal sexual assaults occurring in the workplace. At present, the language is narrowly drafted to cover current and prospective employees only. Accordingly, confidentiality agreements executed by former employees in consideration for severance or settlement payments may not be covered by the statutory protection.
The National Labor Relations Board has reversed its prior precedent, holding that confidentiality and non-disparagement clauses in severance agreements for non-managerial employees can violate an employees basic right to discuss terms and conditions of employment under Section 7 of the National Labor Relations Act – even if the employee is not covered by a union. Though traditionally linked to union activity, Section 7 of the National Labor Relations Act guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection,” as well as the right “to refrain from any or all such activities.”
The new standard was set forth in McLaren v. Macomb, 372 NLRB 58, as issued in February 2023. The decision does not, on its face, outlaw all confidentiality provisions, but it does take issue with broad language that prohibits the employee from discussing the terms of the agreement with any third party. The Board reasoned that an absolute ban that prohibits employees from discussing the terms of the agreements with co-workers or union representatives could produce a chilling effect that would discourage employees from bringing charges before the Board, co-operating with Board investigations or assisting their co-workers who were subjected to unlawful actions. Note that the NLRB’s ruling generally does not pertain to Supervisory personnel who have general managerial authority such as the right to hire, discipline and fire employees.
Non-competition agreements, AKA non-competes, are presently enforceable in Virginia provided that they are drafted in terms that are reasonable with regard to duration, geography and scope. [Update: Virginia law now limits non-competes to employees meeting higher wage thresholds. 2020]. When a non-compete is facially unreasonable because it is vague or overbroad with regard to one of those components, Virginia Courts will refuse to enforce the entire restrictive covenant.
Enter the concept of “Blue Penciling … Blue Penciling is a practice where a Court can in effect redraft or “limit” unreasonable terms of an agreement in a manner that would make the agreement otherwise acceptable and enforceable. Virginia Courts have never endorsed this practice, though it is permitted in other states. As a result, Virginia employers typically do not get a second chance to reform an unreasonable agreement.
Enter the concept of “Choice of Law” … Virginia law does permit contracting parties to elect or choose the law of the State that applies to their contract, provided that it does not offend Virginia public policy. In the case of Edwards Moving and Rigging, Inc. v. W.O. Grubb Steel Erection, Inc., the Richmond U.S. District Court was presented with a non-competition agreement that stipulated to the application of Kentucky law – a State that does permit Blue Penciling. While the Court was not asked to reform the agreement in the context of a 12(B)(6) Motion to Dismiss, it did hold that Kentucky’s Blue Penciling policies were not repugnant to the public policies of Virginia, thereby opening the possibility that a Virginia Court could consider Blue Penciling at a later stage in application of Kentucky law.