New 2024 “Low Wage” Salary Level for Virginia Non-Compete Agreements
As of July 1, 2020, Virginia became one of twelve (12) states that imposed a ban on the use of non-compete agreements for “low wage employees.”[1] At the time of adoption, the salary threshold for a “low wage employee” was $59,124 annually (or $1,137 per week). This salary threshold was not fixed by statute, but instead, the General Assembly adopted a moving target definition that ties the “low wage” salary threshold to the “average weekly wage of the Commonwealth” as determined by the Virginia Employment Commission. The practical effect is that a new average weekly wage is calculated before or at the beginning of each year when, inevitably, the average weekly wage goes up.
On January 16, 2024, more than three-years after the General Assembly adopted the restriction, the Virginia Department of Labor & Industry (“DOLI”) announced that the average weekly wage for the next twelve (12) months had risen to $73,320 annually, or $1,410 per week.[2] An annual salary of $73,320 is not a salary historically perceived as a “low” wage.[3] Accordingly, the time is now for employers to audit existing employment agreements that were entered into on or after July 1, 2020, to determine whether any of those agreements contain a provision that “restrains, prohibits or otherwise restricts an individual’s ability, following termination of employment, to compete with his former employer.”[4]
It is likely that many employers who entered into employment agreements within the past 3.5 years brushed aside the non-compete restriction for “low wage” employees because those newly hired employees were paid $70,000 per year or more—a salary which, by all accounts, is not “low.” With the latest increase to $73,320, these employers will find that the ban now applies because they suddenly have “low wage” employees. Those employers who do not want to (or cannot) raise these employees’ salaries to $73,325 or more, or do not want to (or cannot) commit to giving another pay raise each year to keep pace with the Virginia Employment Commission’s “average weekly wage,” should think twice before including a non-compete provision in their employment agreements.
As something of a silver lining, unlike similar laws in other states, the Virginia law does not require an employer in this situation to notify affected employees that a noncompete provision in the employee’s employment contract is now unenforceable or void. Also, it is important to remember that agreements entered into before July 1, 2020, are not subject to this ban.[5] Accordingly, as long as a “grandfathered” restrictive covenant is otherwise “reasonable” in geography, time and scope, a court is likely to enforce the restriction against an employee—even as to a lower wage employee who earns far less than $73,320.[6]
Going forward, however, an employer planning to hire a new employee who will be paid below $73,320 must avoid any requirement that the employee sign a “covenant not to compete” without getting legal advice on how to draft the agreement—which will require careful nuance. Moreover, if an employee quits or is separated from employment, employers should have any 2020 or “newer” agreement reviewed before a manager or owner threatens a current or former employee with enforcement of a “covenant not to compete.” Virginia gives workers the right to file suit to invalidate such a covenant in the agreement, and if they prevail, the worker is entitled to be paid liquidated damages as well as lost wages, benefits, and attorney’s fees. In addition, the Commonwealth can impose a civil monetary penalty of up to $10,000 per violation.
There is one final reminder to all employers who use covenants not to compete. While employers do not have to send a notice to individual employees that their noncompete agreement is void or unenforceable, Virginia law does require employers to make and maintain a general posting of either a copy of the Virginia Code § 40.1-28.7:8 (the Code section memorializing the non-compete ban for “low wage” employees), or an approved summary of that Code section provided by DOLI. This post must be kept alongside other required federal and state employment law postings.
If you have questions regarding employment agreements, noncompete or non-solicitation provisions, or other restrictive covenants designed to prevent competition or the protection of confidential information and intellectual property, please contact a member of Gentry Locke’s Employment Team.
[1] Va. Code § 40.1-28.7:8.
[2] See Virginia Department of Labor and Industry, Notice of the Average Weekly Wage for 2024, available at https://www.doli.virginia.gov/2024/01/16/notice-of-the-average-weekly-wage-for-2024/. This is up $3,484 from 2023, when the average weekly wage was $69,836 annually (or $1,343 per week).
[3] Statistics from the U.S. Bureau of Labor Statistics (“BLS”) show that the average mean wage in all occupations in Virginia in 2023 was $65,960. See https://www.bls.gov/oes/current/oes_va.htm/#00-0000. It follows that there are a lot of employees making less than $73,320.
[4] While noncompete provisions are less common in contracts with independent contractors, Virginia’s law also applies to independent contractors. The threshold for an independent contractor is the average weekly wage but is the “median hourly wage” for the Commonwealth of Virginia for all occupations as reported for the prior year by the BLS. At the present time, that median hourly wage for Virginia for 2023 was $23.22 per hour. See https://www.bls.gov/oes/current/oes_va.htm#00-0000.
[5] Virginia law may not be the only legal standard that applies. As noted below in ftn. 6, and in an earlier article, last January, the Federal Trade Commission (“FTC”) began the process required to adopt regulations that would invalidate nearly all noncompete agreements. As of this time, the FTC has no further action to move these regulations forward, and it is questionable whether any new rules will be rolled out before the November election. Even if the FTC does issue the new regulation, those new rules will almost certainly be challenged in court, potentially enjoining its implementation and enforcement.
[6] While Virginia law may find a “grandfathered” agreement enforceable, an employer might face a legal challenge to enforcement under another federal law. On May 31, 2023, the General Counsel to the National Labor Relations Board (“NLRB”) issued a memo stating that her office intended to challenge the enforceability of non-compete restrictions required of non-supervisory employees and argued that non-compete provisions unlawfully interfere with employees’ protected rights under Section 7 of the National Labor Relations Act, which extend to non-union employers. In September 2023, the Cincinnati Regional Office of the NLRB filed a complaint against an employer who required its employees to sign an agreement that contained a non-compete as well as customer and employee non-solicitation provisions that applied for two years. The General Counsel’s legal position has been roundly criticized as an unprecedented overreach, but it is unclear how or when the NLRB might resolve this case. Once the NLRB decides the case, the General Counsel’s position will ultimately be decided by a federal court.
