Virginia is further restricting the circumstances in which employers may utilize non-compete agreements. Under Senate Bill 170, effective July 1, 2026, enforceability will depend on how the employment relationship ends.
A central provision of the new law states that a non-compete agreement is unenforceable if the employer terminates the employee without cause and fails to provide severance or other compensation.
This restriction applies to employees at all compensation levels, not solely to low-wage or non-exempt workers. Employers are required to disclose severance or payment terms at the time the non-compete is executed to ensure enforceability.
Expansion of an Already Restrictive Framework
This legislation builds upon prior restrictions that already limited the use of non-compete agreements in Virginia. Previously, non-competes were prohibited for “low-wage employees” as defined by the state’s average weekly wage, and this prohibition was recently extended to all non-exempt employees under the Fair Labor Standards Act (FLSA), regardless of compensation.
Senate Bill 170 imposes broader limitations by applying to all employees, irrespective of compensation. Enforceability now hinges on the provision of severance payments upon termination.
Non-compete agreements remain permissible even without severance when an employee voluntarily resigns or if an employee is terminated for cause, although the law does not specify what constitutes “cause.”
The new law applies to agreements that are entered into, amended, or renewed on or after July 1, 2026. Any employee may initiate legal action for violations of the statute. Available remedies for employers include injunctive relief, damages, attorneys’ fees, and civil penalties.
Practical Impact for Employers
As of July 1, in Virginia, the enforceability of non-compete agreements will now depend on several factors, including:
• Proper employee classifications
• Careful drafting and upfront disclosure of terms
• Thoughtful termination decisions, including whether severance will be offered
After Senate Bill 170, non-competes are enforceable only for a limited group of employees who receive severance or have voluntarily resigned. Accordingly, starting this summer, Virginia employers seeking to enforce non-compete agreements must provide compensation to employees terminated without cause, rather than relying solely on post-employment restrictions.
This shift requires employers to think more strategically about when a non-compete is truly necessary and whether the business is willing to absorb the associated costs.
In many cases, employers may conclude that traditional non-competes are no longer the most efficient or practical option, particularly for mid-level or lower-risk roles.
Instead, employers should consider whether other mechanisms that are not subject to the same restrictions—such as customer non-solicitation agreements, confidentiality agreements, or trade secret protections—can adequately protect legitimate business interests.
For roles where a non-compete remains critical, employers may also consider adopting “garden leave” arrangements. Under these arrangements, employees remain employed but are relieved of duties for the employer during a defined post-employment period, during which they are restricted from competing.
While less common in the United States, these arrangements have long been used in Europe and align with Virginia’s emerging framework by pairing restrictive covenants with continued pay.
What Employers Should Do Now
Before July 1, 2026, Virginia employers should reexamine their approach to non-competes.
Start by reviewing existing agreements and roles to determine whether non-competes are still necessary. For key roles where enforcing non-competes remains a priority, budget for the severance required to ensure agreements can be enforced, and update template agreements to align with the new law’s requirements.
Virginia employers who use non-competes should also continue to monitor the legislative landscape. Additional limitations on non-competes in Virginia are imminent, as separate legislation banning non-competes with licensed health-care professionals, except those arising from the sale of a business, is expected to become law shortly.
For more information, contact Mike at 301-657-0740 or by email at mjneary@lerchearly.com.
