Non-Competes Barred for Personnel Eligible for Overtime Pay, Effective July 1, 2025
The Virginia General Assembly has enlarged a statutory prohibition against the application of non-compete agreements so that its coverage will soon extend beyond the “low-wage employees” covered under the current statute. Under revisions to the Virginia Code effective July 1, 2025, employers will be prohibited from applying non-compete agreements also to employees who do not satisfy requirements for exemption from the overtime requirements under the Fair Labor Standards Act, i.e., 29 U.S.C. § 207.
Revised Virginia Code § 40.1-28.7:8 will prohibit an employer from applying a non-compete agreement to an employee who: i) makes below the average weekly wage established by the Virginia Department of Labor and Industry (“DOLI”) (currently $1,463.10 per week, or $76,081.20 annually); or ii) who is entitled to overtime premium pay for hours worked in excess of 40 hours in a workweek (non-exempt).
An employer that enters into or attempts to enforce a non-compete agreement with respect to an employee the employer misclassifies as exempt under the FLSA and thereby violates the revised Virginia non-compete statute will be subject to a $10,000.00 penalty. The penalty under the non-compete statute will be in addition to remedies available to the U.S. Secretary of Labor and employees against employers who violate the FLSA and state wage-hour law by failing to pay overtime premium-pay for hours worked in excess of forty hours in a work week.
The Virginia DOLI has stated that the revised non-compete statute will expand the number of Virginia employees covered under the law by 2.3 million. Additionally, the DOLI believes the new law will lead to more inquiries by employees and more investigations by the DOLI.
To comply with the current statute in place until July 1, 2025, an employer simply must ensure that the subject employee’s compensation exceeds the statutory threshold for “low-wage employees.” Starting July 1, 2025, employers in Virginia also will have to ensure that they are properly classifying exempt employees subjected to non-compete agreements. The FLSA’s tests for exemptions are not simple, and their misapplication can result in substantial liability for employers. Employers should consider reviewing their classifications of employees under the FLSA exemptions, especially if the employer uses non compete covenants to protect against unfair competition.
Brendan F. Cassidy is an attorney at Praemia Law, PLLC. This article is for general informational purposes only and should not be relied upon or regarded as legal advice. Please contact Brendan Cassidy at brendan.cassidy@praemialaw.com or 703-399-3603 concerning particular facts and circumstances.
