No Severance, No Non-Compete? Virginia Expands Its Non-Compete Restrictions

Virginia is poised to further expand its restrictions on employee non-competes. The Virginia legislature recently passed SB 170 (the “SB 170”), making employee non-competes unenforceable if an employer terminates an employee without cause and does not provide severance or other monetary compensation. This new requirement applies to non-competes for employees at all levels regardless of compensation. Failure to comply with SB 170 can lead to civil penalties and private rights of action with recovery of attorney fees and damages. SB 170 is headed to Governor Abigail Spanberger, who is expected to sign it.

This development is the latest in the growing patchwork of state non-compete laws. Although the Federal Trade Commission’s (“FTC’s”) nationwide non-compete rule has been sidelined, scrutiny of restrictive covenants at the FTC remains. States, such as Colorado, Illinois, and Minnesota, continue to pass laws seeking to limit or ban employee non-competes. And, some courts, such as Delaware, are more closely scrutinizing non-competes. Some other jurisdictions, like Florida, have taken a more employer-friendly approach to restrictive covenants. SB 170 adds yet another layer of complexity for companies operating across multiple states.

Existing Virginia Law

Under Virginia law, employers are prohibited from entering into non-compete provisions with certain “low-wage” employees. “Low-wage” employees include individuals whose average weekly earnings in a year are less than the average weekly wage in Virginia, which is currently $1,507.01 (or $78,364.52 annually). Last year, Virginia amended this law to expand the non-compete ban to all employees who, regardless of their earnings level, are classified as non-exempt employees under the Fair Labor Standards Act. Virginia law defines “low-wage employee” to not only include employees, but also include: (a) independent contractors whose hourly rate is less than the median hourly wage for Virginia; and (b) interns, students, apprentices, or trainees, whether paid or unpaid.

The low-wage worker statute covers not only traditional non-competes that restrict post‑employment work but also certain non-solicitation provisions. That law makes clear that employers cannot prohibit a former employee from providing services to its customers or clients where the employee does not initiate contact with or solicit those customers or clients.

Notably, an appellate court in Virginia in Sentry Force Security, LLC v. Barrera, recently interpreted Virginia’s low-wage non-compete ban to apply to a post-employment non-solicit of employees. The court reasoned that, unlike customer non-solicits, which the low-wage worker law explicitly contemplates, the statute does not carve-out solicitation of employees. As a result, the court found that non-solicits of employees may qualify as prohibited non-competes under the low-wage worker law.

Virginia can also be a difficult jurisdiction for enforcing non-competes given Virginia courts follow the red pencil rule. This rule means that, if a court finds a restrictive covenant to be overbroad on its face, the court cannot modify or strike language to make it enforceable. Accordingly, this requires employers to consider narrowly drafting their non-competes to mitigate the risk of them being found overbroad and unenforceable.

SB 170 Restrictions

If enacted, SB 170 will expand non-compete restrictions well beyond low-wage workers. Key highlights of SB 170 include the following:

• Effective Date: The restrictions apply to all non-competes entered into, amended, or renewed on or after July 1, 2026. SB170 does not apply retroactively to agreements entered into before July 1, 2026. 
• Covered Employers: SB 170 applies to all employers with any employees in Virginia.
• Covered Employees: SB 170 applies to all employees at all levels, including officers and senior management, regardless of compensation.
• Covered Agreements: “Covenant not to compete” is defined broadly as any “covenant or agreement . . . 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.” SB 170 also prohibits non-competes that 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.”
• SB 170 does not expressly cover non-competes during employment, non-solicits of customers and employees, non-disclosure agreements, and invention assignment agreements, assuming they are not drafted in a manner that could fall within the definition of non-compete under SB 170.
• SB 170 does not provide an express carve-out for non-competes entered into in connection with the sale of a business. This means that, presumably, it could apply to sale of business non-competes if they prohibit an employee from competing after employment without complying with the requirements in SB 170. 
• Requirements: SB 170 makes any covered non-compete unenforceable against any employee who is discharged without receiving severance benefits or other monetary payments, unless the employee is terminated for cause. SB 170 requires that the severance payments or other monetary payments be “disclosed upon execution” of the non-compete. Notably, SB 170 does not define “cause” or “severance benefits.” Nor does it specify the minimum amount of monetary compensation or severance required for a non-compete to be enforceable. 
• Private Right of Action: SB 170 allows an employee to bring a private right of action against any employer who “attempts to enforce” a prohibited non-compete. The action must be brought within two years of the latter of the date: (i) the non-compete was signed; (ii) the employee learns of the non-compete; (iii) the employment relationship is terminated; or (iv) the employer takes “any step” to enforce the non-compete. Non‑competes found to violate SB 170 can result in a court awarding injunctive relief, liquidated damages, lost compensation, and reasonable attorney fees.
• Civil Penalty: SB 170 allows the Virginia Commissioner of Labor and Industry to impose a civil penalty of $10,000 for each violation.
• Retaliation: SB 170 also prohibits employers from retaliating against an employee for bringing a civil action pursuant to SB 170.
• Posting Required: SB 170 requires employers to post a copy of the law or a summary approved by the Virginia Department of Labor and Industry in the same location where other legally required employee notices are posted. Failure to comply with this requirement can result in civil penalties up to $1,000.

Practical Takeaways

Assuming SB 170 becomes law, employers will need to consider updating their non-compete practices for Virginia employees. The following are several key action items to consider:

• Update Non-Compete Agreements: SB 170 makes clear that employers will need to address the severance or other monetary benefit requirements when entering into non‑competes with employees. As such, employers should update their non-compete templates and practices for any non-competes entered into after July 1, 2026. 
• Determine Which Agreements Are Covered: Although SB 170 does not expressly apply to other restrictive covenants beyond non-competes, employers should be mindful of how they draft non-solicits and non-disclosures so as to not inadvertently fall within the purview of SB 170. For example, it is unclear how the Barrera case will apply to this new law. A conservative approach would suggest that employers apply the severance and other monetary payment requirements to non-solicits of employees since the court interpreted those restrictions to be covered non-competes. Similarly, consider how SB 170 might apply to non-competes entered into in connection with the sale of a business, particularly if the restriction runs from the end of employment rather than the close of the transaction.
• Determine What Severance or Monetary Payments to Provide: Because SB 170 is silent about what qualifies as “severance benefits or other monetary payment,” employers should consider how best to satisfy this requirement. Without further guidance on this requirement from regulators or courts, employers are presumably free to set whatever amounts they believe may satisfy it. If employees are already entitled to receive severance under their employment agreements or severance policies, it is unclear whether those would count towards this requirement since SB 170 requires severance benefits or other monetary payment to “be disclosed” upon execution of the non-compete. This might depend on how the non-compete was entered into in connection with such severance payments. For new agreements or policies providing severance entitlements to employees, employers should consider updating those agreements and policies to expressly identify that such severance is being provided, at least in part, in consideration for the post‑employment non-compete.  
• Determine How to Define Cause: Because SB 170 is silent about what constitutes “cause,” employers will need to consider how to address this within their non-compete agreements. Absent further guidance from courts or regulators, employers will presumably want to define “cause” as broadly as possible, including conduct that fits within the parameters of legal cause under Virginia law, including for subpar performance, policy violations, and conduct issues. It will also be important to consider how “cause” for compliance with SB 170 might interact with cause definitions in other employment agreements, such as executive employment agreement, equity plans, and other documents. Careful drafting will be important to avoid overly narrow cause definitions that could inadvertently violate SB 170.
• Consider Choice of Law: Unlike some other state non-compete laws, SB 170 does not include any express requirement to have the non-competes with Virginia employees governed by Virginia law. Employers will want to consider whether there is another choice of law requirement that could apply to the agreement and whether such requirement would be enforceable. This will be context dependent and best addressed with experienced legal counsel.
• Provide Training on Prohibited Actions and Enforcement: Employers should consider training their compliance teams, human resource professionals, and managers on SB 170 to ensure compliance and mitigate the risk of them trying to enter into or enforce (or attempt to do either) a non-compete that is prohibited by SB 170.
• Remember Virginia’s Red Pencil Rule: Because Virginia is a red-pencil jurisdiction, careful drafting and advance planning will be critical. Even where a non-compete complies with SB 170, employers should be mindful to align their non-competes with existing Virginia precedent.