Virginia Non-Compete Restrictions Take Effect July 1

Under the new law, a post-employment covenant not to compete between an employer and an exempt employee is not enforceable if the employer terminates the employee’s employment without cause unless the employer provides severance benefits or another form of monetary payment to the employee and discloses that compensation at the time the covenant is executed.

These new restrictions apply only to non-compete agreements entered into, amended, or renewed on or after July 1, 2026. They are not retroactive.

Virginia’s Existing Non-Compete Ban for Low-Wage Workers
Under existing Virginia law employers are prohibited from entering into post-employment non-compete agreements with “low-wage employees” (i.e., those earning less than $78,364.52 annually as of January 1, 2026) or, regardless of income, employees that are classified as nonexempt (i.e., entitled to overtime compensation) under the Fair Labor Standards Act. Virginia law defines “low-wage employee” to also include independent contractors whose hourly rate is less than the median hourly wage for Virginia, as well as interns, students, apprentices, or trainees.

New Condition on Enforceability of Post-Employment Non-Compete Agreements
This change introduces a new condition on the enforcement of post-employment non-compete agreements. Employers must (1) provide additional compensation in connection with the non-compete agreement, and (2) disclose that additional compensation at the time the non-compete agreement is executed. Put simply, beginning on July 1, 2026, employers who seek to enter into post-employment non-compete agreements with Virginia-based employees must provide that, upon termination without cause, either the employee will receive severance benefits or some “other monetary payment.”

Although the law does not define “severance benefits” or “other monetary payment,” it is evident that the statute contemplates some form of compensation. This ambiguity was addressed in a Senate Commerce and Labor Committee hearing on the senate bill (Senate Bill 170), during which a committee member asked whether additional compensation provided at the execution of the non-compete agreement would suffice to fulfill the requirement of the legislation. The Senate sponsor indicated that as long as “separate compensation” is provided in connection with the non-compete agreement, the restriction would be deemed valid (subject to existing restrictions on such provisions). The colloquy between the committee member and the senator suggests that such “separate compensation” may be sufficient whether provided at the time the agreement is executed or upon separation from employment, though this remains subject to courts’ interpretation of this requirement.    

Scope of Coverage
As noted, the blanket prohibition on enforcing post-employment non-compete agreements against “low-wage employees” remains in place. The new provision imposes conditions on the enforceability of non-competes with employees against whom such agreements were previously permissible (i.e., exempt and highly compensated employees).

The new statute does not define “employee.” Existing law, however, defines “low-wage employee” to include “an individual who has independently contracted with another person to perform services independent of an employment relationship” and who earns less than a specified hourly rate (i.e., a low-wage independent contractor). While, as noted, the “low-wage employee” definition encompasses certain independent contractors, it is unclear whether that broader definition has a bearing on the meaning of “employee” in the new provision.

Critically, the new provision expressly applies only to employees who are terminated without cause. In other words, employers may still enforce post-employment non-compete agreements against exempt high-earning employees who voluntarily resign or who are terminated “for cause.”

Impact on Sale of Business Non-Competes
The law is limited to covenants “between an employer and an employee” and does not address non-compete agreements in the sale-of-business context.

As a result, traditional sale-of-business non-compete agreements—typically entered into between a buyer and a seller—are likely outside the law’s scope. But even if the new provision were interpreted to apply in such contexts, consideration paid in connection with a business sale would likely support enforceability as “other monetary payment.”

The law nevertheless underscores the importance of properly structuring restrictive covenants in transaction settings, particularly where a seller becomes a post-closing employee of the buyer.

To maximize the likelihood that a non-compete will be treated as a sale-of-business covenant:

• The restriction should be included in the purchase agreement itself or in a standalone sale of business restrictive covenant agreement and not be included in an employment agreement.
• The covenant should expressly tie the restriction to the goodwill conveyed in the transaction.
• The geographic scope should align with the actual footprint of the acquired business.
• The restricted activities should be limited to the business lines being sold.

Where transaction and employment arrangements are blended, courts may treat the restriction as an employment-based non-compete agreement, potentially subjecting it to stricter scrutiny and, under the new law, the “separate compensation” disclosure requirement.

Next Steps for Employers
In advance of the law’s July 1, 2026 effective date, employers should revisit how they structure and implement non-compete agreements with Virginia-based employees.

Specifically, employers should:

• Ensure that employment agreements containing non-compete provisions clearly disclose any severance benefits or other monetary payment that will be provided in the event the employee is terminated without cause and clearly define cause.
• Revise offer letters, employment agreements, and onboarding processes to ensure disclosures are made at the time that the non-compete agreement is executed.
• Confirm continued compliance with the prohibition on post-employment non-compete agreements for low-wage and non-exempt employees.
• Consider alternatives to non-compete agreements that enhance protections around proprietary and confidential information such as non-solicitation covenants and meaningful return of company property policies.

Additionally, multistate employers should work with counsel to ensure their restrictive covenant agreements comply with all applicable laws. As of the date of this publication, 34 states and the District of Columbia have enacted some form of restriction on non-compete agreements, four states (California, Minnesota, North Dakota, and Oklahoma) have adopted near or complete bans on such provisions and additional legislation has been introduced in a number of jurisdictions. Employers operating across state lines should consult counsel to ensure their restrictive covenant agreements are tailored to comply with applicable state law.