Court Of Appeals Of Virginia Clarifies Scope Of Commonwealth’s Non-Compete Ban And Its Impact On Non-Solicitation Agreements

Since 2020, Virginia has prohibited employers from entering into or enforcing non-compete agreements (“NCAs”) for low-wage workers. Currently, the law bars NCAs for employees who earn less than $78,364.52 per year or who are non-exempt from the Fair Labor Standard Act’s (“FLSA”) overtime requirements. The law, however, does not apply to employees “whose income is derived in whole or predominantly in part from sales commissions and the like.”

Since the law’s enactment, employers have questioned how these restrictions apply to non-solicitation covenants (both of customers and employees). The Court of Appeals of Virginia recently issued a decision addressing this issue. Absent action by the Supreme Court of Virginia, this ruling is a binding interpretation of the law.

At issue in the case was the following statutory language which provides an important qualifier on what constitutes a NCA: “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.”

In interpreting this sentence, the Court ruled:

1. Employers can prohibit low-wage employees from directly soliciting customers or clients, both during and after their employment.
2. Employers cannot prohibit low-wage employees from accepting unsolicited business from a customer or client.
3. Employers cannot prohibit low-wage employees from soliciting employees.

Given this decision, we recommend you review any agreements with low-wage employees that contain post-employment restrictive covenants to ensure they comport with the Court’s ruling. That is, customer non-solicitation provisions should be limited to prohibiting direct solicitation, and any restrictions on soliciting employees should be removed.

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