Virginia Further Limits Noncompete Covenants While Court Addresses Nonsolicitation Covenants

Virginia continues to limit the circumstances in which employers may enter into, enforce, or threaten to enforce noncompete agreements with Virginia employees. In 2020, Virginia enacted a statutory prohibition on noncompetes for low-wage employees. Effective July 1, 2026, Senate Bill 170 will further limit enforcement of noncompetes against employees who are discharged without cause unless those employees receive severance benefits or other monetary payment disclosed when the covenant is executed.

The Virginia Court of Appeals also recently addressed how the statute applies to customer and employee nonsolicitation covenants.

EXISTING VIRGINIA LAW

Virginia law, Va. Code § 40.1-28.7:8, provides that “[n]o employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any low-wage employee.” A covenant not to compete is an agreement or provision 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 statute also draws an important distinction between active customer solicitation and passive customer acceptance. While employers may not enter into, enforce, or threaten to enforce noncompetes with low-wage employees, the statutory definition of “covenant not to compete” does not prohibit restricting a former employee from initiating contact with or soliciting customers or clients.

Conversely, a low-wage employee may not be restricted 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.”

For 2026, the compensation threshold covers employees earning average weekly wages of less than $1,507.01 per week, or approximately $78,364.52 per year. The term “low-wage employee,” however, also includes any employee who, regardless of weekly earnings, is entitled to overtime under the Fair Labor Standards Act (FLSA). Certain trainees and independent contractors may also be covered, while employees whose earnings are derived wholly or predominantly from commissions, incentives, or bonuses are excluded.

Violations of the noncompete ban for low-wage employees, including attempts or threats to enforce prohibited covenants, may result in voiding the covenant, injunctive relief, liquidated damages, lost compensation, attorney fees, costs, and a $10,000 civil penalty for each violation. The statute also requires employers to post either a copy of the statute or an approved summary where other required employee notices are posted; failure to comply may result in civil penalties.

SB 170 EXPANDS THE STATUTE FOR CERTAIN DISCHARGED EMPLOYEES

Effective July 1, 2026, SB 170 amends Va. Code § 40.1-28.7:8 to add a separate restriction on noncompete enforcement for discharged employees. The amendment provides: “No covenant not to compete between an employer and an employee is enforceable if such employer discharges such employee from employment without providing severance benefits or other monetary payment to such employee, unless such employer discharges such employee for cause.”

The amendment requires the “severance benefits or other monetary payment [to] be disclosed upon execution of the covenant not to compete.” The statute does not define “cause,” nor does it specify what amount or type of severance benefits or other monetary payment will be sufficient to preserve enforceability.

The amendment is prospective and applies only to covenants entered into, amended, extended, or renewed on or after July 1, 2026.

COURT OF APPEALS ADDRESSES CUSTOMER AND EMPLOYEE NONSOLICITATION COVENANTS

The Virginia Court of Appeals recently considered how Virginia’s low-wage employee noncompete statute applies to customer and employee nonsolicitation restrictions.

In Sentry Force Security, LLC v. Barrera, Va. Ct. App. No. 1405-24-4, 2026 WL 200848 (Va. Ct. App. Jan. 27, 2026), the employer sought to enforce restrictive covenants against a former employee who allegedly formed a competing security business, diverted customer opportunities, and solicited employees. The parties disputed whether the agreement’s customer and employee nonsolicitation covenants qualified as prohibited noncompete covenants under Va. Code § 40.1-28.7:8.

The court’s analysis focused on the statute’s definition of “covenant not to compete.” While that definition broadly covers agreements that “restrain[], prohibit[], or otherwise restrict[]” an individual’s post-employment ability to compete, it also provides that 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.”

The court read those provisions together and held that employers may prohibit former employees from initiating contact with or soliciting customers or clients, even if the former employee qualifies as a low-wage employee.

The court reached the opposite result for employee nonsolicitation covenants. The statute’s language does not contain any comparable carveouts for employees. As a result, the court held that the employer could not enforce a covenant that prohibited the former employee from soliciting the employer’s employees after leaving employment. Barrera has since appealed the matter to the Virginia Supreme Court.

EMPLOYER CONSIDERATIONS

These developments do not eliminate all post-employment restrictive covenants in Virginia. They do, however, make it increasingly important for employers to evaluate their restrictive covenant frameworks on a covenant-by-covenant, employee-by-employee, and separation-by-separation basis. For now, employers with Virginia employees should consider:

• Confirming compliance with Virginia’s posting requirement;
• Identifying employees and applicants who may qualify as low-wage or FLSA-nonexempt employees, including applicants to whom the employer intends to extend an offer conditioned on entry into an agreement containing restrictive covenants;
• Revising templates for agreements entered into, amended, extended, or renewed on or after July 1, 2026, including by defining “cause” consistently across employment, equity, incentive, and severance documents and affirming that any disclosed severance benefits or other monetary payment constitute adequate consideration for the covenant;
• Reassessing employee nonsolicitation covenants for employees covered by Virginia’s statutory restrictions;
• For employees covered by Virginia’s statutory restrictions, narrowing customer nonsolicitation covenants to affirmative solicitation, initiation, diversion, or interference;
• Strengthening confidentiality, trade secret, and information-security provisions; and
• Reviewing enforcement letters before issuance to assess whether the contemplated demand could be construed as threatening to enforce a prohibited covenant.

HOW WE CAN HELP

Morgan Lewis lawyers regularly assist clients with reviewing and updating restrictive covenant agreements, evaluating enforceability under evolving state law, and developing trade secret and confidential information protection strategies. Employers with Virginia employees should consider reviewing offer letters, employment agreements, equity and incentive arrangements, severance documents, confidentiality agreements, nonsolicitation covenants, and enforcement protocols in light of these developments.