According to Investopedia, the non-compete contract restricts employees from joining a competitor company once they end their employment. Furthermore, these agreements prohibit the employee from revealing proprietary information to other parties during or after employment.
Generally, there is a specific period for this type of restriction. Employers’ purpose is to ensure that they do not suffer any financial losses once the employer leaves. The clauses are meant to shield the companies from potential loss of revenue due to trade secret information being revealed. Employers can mandate the employees sign non-compete agreements to keep their place in the market. The following parties may be required to sign these: employees, contractors, and consultants.
Each jurisdiction validates and enforces the non-compete agreements in their respective states. Therefore, each state can vary depending on the local regulations. Sometimes, the former employer must keep paying the ex-employee a base salary during the non-compete period.
However, the components that form a non-compete clause can be similar across the states. Most clauses include certain provisions that create them. First, specifying a duration of time for the agreement provides an end period for the contract. It could be up to 6 months or a year, but long-term agreements are prohibited because they inhibit employees’ future growth and career opportunities.
Another component is geography, which locks a certain location from being considered for employment. Next is scope, which specifies the type of work or services an ex-employee cannot provide. This includes certain information, techniques, procedures, and practices unique to the business or otherwise proprietary.
Moreover, there must be clear and concise written guidelines for the competition. The company needs to provide some guidance on what this entails and what types of businesses are prohibited from working with. Lastly, damages will be awarded to the employer if the employee breaches the contract.
What Is a Non-Compete Clause Under Virginia Law?
A non-compete clause is a contract between an employer and an employee that restricts the employee from working for a competing business. The contract will generally outline a certain geographic area and period when the contract is applicable.
Due to the nature of these clauses, they prevent workers from leaving jobs while decreasing competition for workers and lowering wages, according to the Federal Trade Commission (FTC). They also inhibit the formation of new businesses and reduce creativity in sharing ideas for the business. Although they are meant to protect the business trade secrets, in some situations, they are becoming overbearing and overreaching.
For Virginia lawmakers, there has been a change in the non-compete clause rules. Recently, Virginia joined several states that have passed regulations restricting employers from enforcing non-compete agreements against low-wage employees. The other states that already have similar rules include Illinois, Maine, Maryland, Massachusetts, New Hampshire, Rhode Island, and Washington.
The purpose behind the modification in the laws is due to public policy. Increasing the non-compete agreements has been unfairly restricting low-wage workers, who have limited bargaining power concerning employers from seeking new employment opportunities. Prohibiting their rights to equal opportunity has become a burden on the industry. Therefore, with this ruling, Virginia state officials hope to create a fair system for the low-wage workers.
Virginia defines the low-wage employee based on both income and the nature of an employee’s work. The definition further mentions that employees who earn less than the weekly average wage in Virginia and independent contractors who earn less than the median hourly wage for all occupations in Virginia are covered under the new statute. Moreover, this rule encompasses interns, students, and apprentices, whether or not they are paid.
There are statutes of limitations for lawsuits brought for enforcement of non-compete clauses. The low-wage employees in a non-compete agreement have two years to bring a civil action against their employer. Below is a description of the information needed before filing for a lawsuit:
- Date of when the non-compete was signed
- When did the low-wage employee learn about the covenant of non-compete
- When the employee was terminated
- The date of enforcement of the noncompete
There is a new law, the Non-Compete Clause Rule or Final Rule, that will be enacted around August 2024 governing non-compete agreements. The details and impact of this new rule will be discussed towards the end of this article.
What Are the Penalties for Violating the Law?
There are penalties if you violate the regulations set for the non-compete clauses. For instance, the low-wage employee can file a lawsuit against the employer for violating or attempting to violate the law. The relief includes the following:
- Lost compensation
- Liquidated damages
- An injunction against the employer
- Attorney’s fees and other costs, including fees for expert witnesses
Organizations and businesses that do not adhere to this ruling can face civil penalties of $10,000. Furthermore, if employers are found violating this law, there will be legal consequences, including lawsuits seeking damages, attorneys’ fees, and liquidated damages.
However, there are provisions included in the statute that permit the employer to use their right to enforce non-disclosure agreements restricting trade secret misappropriation. Although this is part of the statute, businesses need to look closely at their practices. They need to incorporate a balance of these regulations that both protect the rights of their employees and protect their company against loss.
Moreover, the law consists of an anti-retaliation provision. It specifically states that “No employer may discharge, threaten, or otherwise discriminate or retaliate against a low-wage employee for bringing a civil action according to this section.” Employers must inform and post information regarding the new law to ensure their workers know about the change and how it will be implemented in their business practices.
How Should Employers Respond?
To implement the new business practices in their companies, the following are some suggestions on how to proceed. First, before drafting any non-compete agreements, there must be a clear understanding of how the contract’s language should reflect the new ruling. The courts will enforce the noncompete agreements for employees other than low-wage employees if the employer can show that they are:
- Specifically drafted with provisions to protect a legitimate business interest
- It does not create undue Not burdens on the employee’s ability to earn a living
- It meets the standards of public policy
When Can You Enforce Non-compete Agreements?
Virginia’s non-compete contracts cover low-wage employees as defined by the statute. This creates a specific group of people that would be covered under the law and require more scrutiny.
But, the non-compete must also be reasonable for all parties. This includes in terms of geographic location, scope, and duration. Virginia has created a system for tracking and ensuring that the agreements are not overly broad or excessively lengthy, which may be deemed unenforceable.
Therefore, understanding the local laws of limitations on non-compete agreements will help you navigate them. All companies should examine their business practices regarding these agreements and how to ensure they comply with the law. Ensuring compliance with this new law is critical, protecting both your business interests and your cherished employees.
What Is the Most Recent Law Governing Non-Compete Agreements?
Towards the end of 2024, a new federal rule, called the Final Rule or Non-Compete Clause Rule, will govern all non-compete agreements. The Federal Trade Commission (FTC) voted to enact this new law in April of 2024.
This law will place a ban on non-compete agreements, with one exception. It will become effective 120 days after the publication of the Federal Register, which should be around August 2024.
Once enacted, every employer will have to comply with this new law. Due to these changes, all employers should make preparations for these upcoming changes to ensure they are in compliance with this law when it takes effect.
There is one exception to this rule, which is agreements made with senior level executives. This exception was provided because it is likely that these agreements made with higher-level employees are more likely to have been negotiated.
If, however, a worker was not a senior level employee when their agreement was signed, once this new law takes effect, it will not be enforceable. Every Virginia employer will be required to provide notice to workers that the non-compete agreement they signed is no longer enforceable.
Based on these changes, employers may need to completely rewrite or revise the employment agreements that are currently in use.
How Does this Affect State Laws?
The Final Rule will affect state laws, as it preempts any conflicting state laws. Virginia laws currently ban non-compete agreements made with low income employees.
Other non-compete agreements, except those made with senior level employees, will be prohibited. In other words, the new law will broaden the prohibitions already in place.
What if the Final Rule Is Challenged in Court?
The Non-Compete Clause Rule is likely to be interpreted by courts and challenged in court at a future time. As discussed above, Virginia laws already place some limits on the use of these agreements.
The rule does contain a severability clause, meaning that, if a part of this new law is unenforceable or invalidated, the rest of the law will still remain in effect. It may also be possible that the Final Rule will be entirely struck down in the future.
Virginia employers should obtain advice from their attorneys or in-house counsel to ensure that this new law will not affect their current business practices. Employers should ask their attorneys to stay updated on any changes to the new law and ensure that they remain in compliance as the laws are updated.
Do I Still Need to Know about the Previous Non-Compete Agreement Laws?
It is very important to be aware of both current Virginia laws governing non-compete agreements as well as the possible changes that will occur when the Final Rule is enacted. Although there are already bans on certain agreements, the use of these agreements will be further limited by the Final Rule.
Virginia employers should be aware of these issues and how it can affect their businesses. Lawyers can help employers draft new employment agreements, edit current agreements, and ensure that future agreements comply with the new laws while still protecting employers.
When Do I Need to Contact a Lawyer?
Laws have evolved regarding non-compete clauses, and Virginia is one of those progressive states. There is now a limitation on these agreements regarding low-wage employees.
These limitations are mentioned earlier and are defined by local state law. If you are facing any issues regarding your non-compete clause, you can contact a local Virginia employment contract lawyer to assist you with your case. If a company fails to comply with the local state law, it will be subject to penalties.
