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.
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.