Non-Compete Agreements and Their Future

Non-compete agreements are one of the most controversial types of employment agreements. To some, they are legitimate mechanisms for employers to safeguard their talent. To others, they are manifestly unfair threats to employees’ livelihoods. Regardless of their controversy, most non-compete agreements are enforceable in Virginia (for now). A Richmond non-compete lawyer can help both employers and employees analyze the validity and enforceability of their non-compete agreements.

The Basics of Non-Compete Agreements

Non-compete agreements are agreements (or clauses within larger employment agreements) that restrict an employee from competing with an employer after he or she leaves employment. They are not unlimited in scope; they generally only prohibit competition for a certain amount of time, in a specific geographic area, and/or for certain types of companies or markets. They tend to be most common at the executive level and in highly skilled professions and highly competitive industries.

Most non-compete agreements cover at least the following topics:

Duration: Non-compete agreements cover specific time frames, such as six months to two years after termination
Geography: The agreement may specify the geographic area in which the former employee may not compete, such as the Richmond metropolitan area or the state of Virginia
Scope: The agreement defines the types of work, services, or other activities that the former employee is prohibited from engaging in. For example, if the employer is a software developer, the agreement will specify the types of software development activities it covers.
Competitors: The agreement defines the types of companies the employee is prohibited from working for, such as other companies in the same industry as the employer.
Damages: The agreement specifies the compensation to which they are entitled should the employee violate the agreement

Non-compete agreements that are well-drafted by a Richmond non-compete lawyer are clear and unambiguous about each of these elements, leaving little room for doubt as to what conduct is prohibited.

Why Employers Use Non-Compete Agreements

Employers use non-compete agreements as an employment strategy to protect their intellectual property and their investments in their employees. When a company hires a new employee, it typically expends significant resources training the employee and getting them up to speed on how the company operates — not to mention the resources the company expended in the candidate search process that led to the employee’s hiring. Many employers also grant employees access to sensitive trade secrets and other proprietary information that could seriously harm the employer’s interests were they to fall into the wrong hands (although this could also be accomplished through a non-disclosure agreement). Non-compete agreements protect employers’ investments in their employees and provide a modicum of protection from their proprietary business information walking out the door.

Enforceability of Non-Compete Agreements in Virginia

While non-compete agreements generally are enforceable in Virginia, they are considered restraints on trade and therefore are disfavored in the law. Non-compete agreements are strictly construed, and courts resolve any ambiguity in them in favor of the employee. To be valid and enforceable in Virginia, non-compete agreements must meet each of the following elements:

The restraint is no greater than necessary to protect a legitimate business interest of the employer
The restraint is not unduly harsh or oppressive in curtailing an employee’s ability to earn a livelihood
The restraint is reasonable and not violative of a public policy

An employer seeking to enforce a non-compete agreement bears the burden of proving that the agreement meets these elements. Analysis of the validity and enforceability of non-compete agreements is intensely fact-specific and will vary by industry and employee. When assessing a non-compete agreement, courts typically try to determine whether the agreement is “reasonable” and not “overly broad.” They look at a number of factors to do this, including:

The employer’s business interest to be protected
The nature of the former and subsequent employment of the employee
Whether the prohibited activities are within the scope of the former employer’s business activities
Whether the employee’s actions actually violated the terms of the agreement
The respective bargaining power of the employer and employee
The employee’s access to confidential information
The degree of contact and goodwill between the employee and the employer’s customers

These are merely a few of the factors Virginia courts consider; for more information about how the factors in your case may play out, please contact a Richmond non-compete lawyer.

Virginia’s Ban on Non-Compete Agreements for Low-Wage Employees

In 2020, the Virginia legislature passed a law banning the use of non-compete agreements for low-wage employees. A “low-wage employee” under the statute is an employee whose average weekly earnings are less than the average weekly wage in the Commonwealth. This category includes certain interns, students, apprentices, trainees, and independent contractors. Any employer who violates this statute may be subject to a penalty of $10,000 per violation.

Federal Efforts to Limit Non-Compete Agreements

Efforts to limit or ban non-compete agreements are in the works at the federal level.

Federal Trade Commission Proposed Rule

In January 2023, the Federal Trade Commission (FTC) proposed a new rule that would ban non-compete agreements as unfair methods of competition. It would apply to both new and existing non-compete agreements. It would also require employers to provide notice to employees that their existing non-compete agreements are no longer in force and prohibit employers from representing to employees that they are under a non-compete agreement.

Workforce Mobility Act

The bipartisan Workforce Mobility Act, introduced in February 2023, contains similar provisions to the FTC’s proposed rule. The law would apply to agreements that restrict an employee from performing (1) any work for another person for a specified period of time, (2) any work in a specified geographic area, and (3) any work for another person that is similar to the employee’s work for their former employer.

Contact a Richmond Non-Compete Lawyer for Further Guidance

The validity and enforceability of non-compete agreements depend on a unique set of circumstances in almost every case. As such, employers and employees looking for help with a non-compete agreement would be well-served by speaking with an attorney. For more information, please contact a Richmond non-compete lawyer at Pierce / Jewett by calling 757-304-6655 or using our online contact form.