One of our previous blogs discussed the 2020 Virginia statute (§ 40.1-28.7:8. Covenants not to compete prohibited as to low-wage employees; civil penalty (virginia.gov)) that restricted the use of noncompete agreements. A couple of little-noticed provisions in the statute deserve further comment.
As a reminder, the law provides that as of July 1, 2020, employers are prohibited from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee.” The law defines “low-wage employee” as one whose average weekly earnings are less than the average weekly wage of the Commonwealth, as determined annually by the Virginia Workers’ Compensation Commission. That amount is currently $1,195 per week. In addition, the law broadly defines the types of employees who are covered, which can include some independent contractors. It specifically excludes, however, employees “whose earnings are derived, in whole or in predominant part, from sales commissions, incentives or bonuses.” The new law is applicable to covenants not to compete that are entered into on or after July 1, 2020. It does not apply to agreements entered into prior to that date.
One of the little-noticed provisions deals with independent contractors: “’Low-wage employee’ also includes an individual who has independently contracted with another person to perform services independent of an employment relationship and who is compensated for such services by such person at an hourly rate that is less than the median hourly wage for the Commonwealth for all occupations as reported, for the preceding year, by the Bureau of Labor Statistics of the U.S. Department of Labor.”
The most recent Virginia median hourly wage is $22.69. See Virginia - May 2021 OEWS State Occupational Employment and Wage Estimates (bls.gov). Be cautious, however, about the use of noncompete agreements with independent contractors. Those agreements should be drafted very carefully to avoid converting an independent contractor into an employee.
Another provision restricting the scope of noncompete agreements is: “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.” That provision should be included in every new noncompete agreement form.
Employers must post either a copy of the new law or a summary approved by the Virginia Department of Labor and Industry where other state and federal laws are required to be posted. A poster on the DOLI website which also contains the average weekly wage information is found at Notice-of-the-Average-Weekly-Wage-for-2021.pdf (virginia.gov).
John Falcone and Luke Malloy handle employment law matters at PLDR Law. Feel free to contact us if you have questions about this matter.