You Can't Work There, Can You?

Hello and welcome to the inaugural episode of Council at Work, a Williams Mullen Labor, Employment, and Immigration Law podcast, where we explore the labor, employment, and immigration topics executives, human resources leaders, and in-house counsel want to learn about the most. We're here to deliver practical insights to help employers reduce risk and make confident decisions. 

I'm your co-host, Matt Anderson. I'm a partner in the labor and employment and immigration section at the Williams Mullen Richmond Office. I've been practicing law for almost 14 years now, and I not only represent employers of all sizes in litigation, but also help them navigate the complex maze of employment law compliance. Whether it be defending against a discrimination claim, ensuring their employees are properly paid, or checking in on their handbooks, my job is to make sure employers are able to focus on running their business rather than worrying about a lawsuit.

I'm pleased to welcome my colleague and co-host, Emily Chowhan, who's also an attorney in our labor, employment, and immigration section here in Richmond. Emily, why don't you tell them a little bit about yourself? Hi, Matt, and hello to our listeners. I'm so excited to be here. So, I'm also a labor and employment management side attorney with Matt in Richmond, Virginia. This is, you know, an audio only format, but if you were here, you'd see Matt and I actually are sitting in our offices next to each other, which is what we do a lot every day, dialoguing about the issues facing businesses as they try to navigate a changing legal landscape, particularly in the Commonwealth of Virginia. I also do a bit of work in the education space with some higher education institutions, some public school institutions as well. And at some point on this podcast, we'll probably have some of our immigration friends join us. But for today, we are talking about non-competes. 

Matt, what does that mean? What is a non-compete? So, you know, the basic definition of a non-compete is the provision in a contract that says an employee can't go work for a competitor. And here in Virginia, there are three and actually in in pretty much every state, you look at three different elements of a non-compete. Those elements are the scope, the duration and the geography of the non-compete. So what's the scope? The scope talks about you know what exactly is competitive activity. Here in Virginia courts have said you have to be pretty specific about that. You know for example you can't say hey CFO you can't go work for rival X at all. Even if that meant CFO goes and is the janitor for Rival X. that scope is too broad. It has to be kind of you have to be able to pin it to what the employee is doing for you. Duration, that's just how long they can't do that. Here in Virginia, the rule of thumb is 2 years or less is generally acceptable. There are some occasions where longer has been allowed, but that's very specific. And then geography, where can they not do it? If you're, you know, a mom and pop shop on Main Street and you say you can't go work in a mom and pop shop anywhere in the United States, that's probably a little bit too broad. That's not really looking out for what's considered a protectable business interest. So, that's kind of the three things that a court would look at for a non-compete. And it all boils down to is employer protecting a legitimate business interest. We also see sometimes what are called non-solicits. 

Emily, care to enlighten our audience on what that means? I know. Well, when you think of solicitation, you think of walking up to someone's door and seeing the sign on the door that says no solicitation. But slightly different here. Similar concept. So, Virginia's law, when you have an employee who departs, you can ask the employee not to solicit your customers and take them away from your business. You can put a ban on that. That has to be reasonable like Matt just outlined. But what you can't do is say you can't serve those customers whatsoever even if they come to you. If you know customers of the employer seek out the employee upon departure, not much we can do about that. So that's the distinction for customer non-solicit. I'll put a finer point on that. If you have your non-solicit that says, hey, you can't can not only call on your former customers, but if they call you, you can't provide them services. the statute, the non-compete statute in Virginia says that's actually not a non-solicit, that is a non-compete. And so we're looking at a situation here where you may call it something, but a court may say, well, we don't really care what you call it. This is what its function is. And our listeners might be surprised to learn that there are other forms of non-solicitation provisions that have been recently found to be actually non-compete provisions.

Emily, you want to talk about that case? Yeah, absolutely. Thought it was one thing, it turned out to be another. So, historically, if you're a business owner, you are able to say as an employer that your employees cannot solicit other employees. So, if I leave my job at the ice cream stand, I can't ask my co-workers, tell my co-workers at the ice cream stand to come along to the new place that I'm working. I'm not allowed to do that. Traditionally, having a ban like that was fine, but not anymore. In the past year, the Virginia Court of Appeals found that putting employee non-solicits in place was essentially the same thing as a non-compete. They said it violated that same portion of the non-compete law. So, for now, in Virginia, having non-solicitation provisions in an employment agreement is prohibited. that case has been appealed. So we might see a change again in that area of the law. But it's important to note because ban on employee non-solicits is a sea change. A lot of us were very surprised that the court of appeals came to that decision. But to to kind of put a wrap on what is a non-compete. So obviously any provision where employees prohibited from working for a competitor be a non-compete. any provision that says, "Hey, you can not only not solicit customers, but accept business from the customers who reach out to you first. And any provision where you bar from talking to their not only their former co-workers, but kind of anyone who's working for you after they leave, those would all be defined as non-competes under Virginia law, whether it be the statute or this court of appeals decision. 

So the next question is who can be subject to a non-compete and the origin of this statute was to bar what is called low-wage employees from being subject to a non-compete. And if you think about it, the intention there makes a lot of sense. If you've got, you know, someone who's working for minimum wage, doing menial tasks, they're back at the ice cream stand. We're back at the ice cream stand. the folks who are scooping your ice cream for you, these people aren't making a ton of money. They're like many folks, they're probably struggling to get by in today's world. And so to kind of handcuff them from being able to find gainful employment or move to a better position that could be better for them, better for their families, that just didn't make sense. And so, you know, the legislature was very well-intentioned when they created the statute and it has changed quite a bit since that initial passage. So, Emily, why don't you tell our listeners what exactly is a low-wage employee because I think some people might be surprised at this definition. Yeah. So, the general assembly currently defines a low-wage employee as anyone making less than about $76,400 a year. the definition of who's a low-wage employee changes index to inflation which means that typically that amount that threshold goes up a little bit every year but you know that's important to note because I think more employees especially as that amount continues to grow are considered low-wage employees than employers might think on first glance. Yeah. And there's also been an addition to that definition so in recent years. So, not only is it the, you know, $78,400 threshold of earnings, but also if you are a non-exempt employee. So, you know, if you could be making a $100,000 $200,000 a year in theory, uh, if your hourly wage is high enough, but if you're a non-exempt employee, you're considered a what's called a low-wage employee. And the statute bans non-competes for anyone who's falls under that definition of low-wage employee. Absolutely right. 

So yeah, two things you got to keep in mind there. And then another change to the statute recently, just this year, effective July 1st, is that there are multiple healthcare professionals for whom non-competes are completely disallowed. So the general assembly has prohibited non-competes for anyone certified by the board of medicine, nursing, counseling, optometry, psychology or social work. So in practical terms, that means that nurses and medical doctors can't be subjected to non-compete provisions as well as multiple other medical professionals. And that again is a sea change because a lot of agreements for medical professionals have traditionally been written with non-competes. Now, non-competes entered by the health care professionals prior to July 1st, 2026 should still be enforceable, but going forward they will not be. Yeah. And the word should there is doing a lot of work because this statute opens up the argument that any non-compete entered into before the statute went into effect would be prohibited for public policy reasons. And the health care aspect of this is certainly its own can of worms that we're going to get to in a later episode. Hopefully talking with someone from our health care team here at Williams Mullen to kind of dive into not only what the statute says about healthcare worker restrictive covenants, which these non-competes and non-solicits are more broadly called, but how you do it and how it's affecting life on the ground these days. So, I think that, you know, we've covered what's a non-compete. We've covered who can be subjected to one. 

So, let's say we've got an employee who is not a low-wage employee, who's not a health care worker, you know, so how do we do this? How do we put these restricted covenants onto this employee? Well, I think the first step in that process is always to we really got to dig down deep. All right. What is the business interest that we are trying to protect here? because there might be a better way to do this. Confidentiality or non-disclosure agreements that can protect a lot of what you're aiming to protect and those are not subject to the statute. Those are not only not subject to the statute, but those are given a lot more difference by a court than any of the other types of restrictive covenants. So, that is one way to protect what you're looking at. Doing a proper customer non-solicit can really help you avoid having that section of the agreement that says non-compete, which is going to be looked at with a very close eye by anyone and everyone. Once we decide, all right, here's the interest we're trying to protect, we need to be very intentional, and I've alluded to this before, we need to be very intentional about defining the scope, duration, and geography of that non-compete. 

So Emily, you recently found a case from the Virginia Court of Appeals that talks about non-competes in their scope. You want to give our listeners a little more detail into that? Yeah, absolutely. That case is CNA Scientific Company, but at bottom there, the two gentlemen in the case have previously been in business together. I believe they were actually cousins. and one of them was subject to a non-competition agreement, but he contested it saying that it was illegal and unenforceable as written. And the court of appeals agreed in part because the non-compete was so broad that it simply couldn't be enforced. As Matt said earlier, courts will consider the scope and the duration and the function of the agreement and consider them all together when deciding whether or not something is reasonable. and this non-compete was essentially unlimited and the court said no that's not something that we can engage in. And the other portion of that case that I think is important to think about, you need to be careful when drafting these types of agreements because Virginia courts typically will not rewrite your contract for you and they won't simply strike out the parts that are problematic. They'll throw the provision out entirely. It's a concept called blue penciling in the legal terms and Virginia doesn't do it. So, you want to be careful because you don't want the baby to get thrown out with a bath water because we were a little bit too imprecise. Yeah, I think it's a really good point. There's no second bite of the apple here. Courts don't blue pencil. Like you said, I worked for an employment attorney before I even went to law school, and that was one of the things that had been drilled in my head working for him was you're stuck with the restrictive covenants you're drafted with, and a court's not going to save you. So when we do these for clients, we make sure that they are very carefully crafted. Sometimes they take up an entire page because you need to have a lot of qualifiers and it might be difficult for the non-legal person to read, but you know, it's there for a reason. And to that end, there are some things you can put into an agreement that can kind of counteract the lack of ability to blue pencil here. 

The main thing is what's called a severability provision. What a severability provision in a contract that says, "Hey, if any provision in this contract is deemed by a court to be illegal, then we're just going to operate as that provision has been struck from the agreement and the rest of the agreement can go on." In the restrictive covenant area, that means, hey, if a court finds our non-compete is over broad and therefore unenforceable, that doesn't mean the non-disclosure provision is thrown out. doesn't mean that the non-solicitation provisions are thrown out. But only if you have that severability provision. If you forget that and you go too far on your non-compete, then everything else gets tossed. As Emily said, the baby gets thrown out with the bath water. You want to make sure you have that. 

Emily, there's another provision that I think our listeners should know about that is you don't really think about it a lot, but it's very crucial when it comes to enforcing these provisions that you want to have last beyond the life of the agreement, the employment. Yeah, we saved one of the biggest reveals for last. So, as of July 1st, a non-compete agreement, even if you're not a low-wage employee, even if you're not a non-exempt employee, you know, even if you're not one of the listed health care professions, you can't be subject to a non-compete unless your employment agreement provides severance benefits upon termination, unless you're fired for cause. So essentially the law contemplates that if you, an employer, a business, want to have your employee sign a non-compete agreement, you must promise them some type of severance benefit when they leave the company. That's probably money. It's not very well defined in the statute, but it usually is money. We don't know how much. The statute does not set a minimum or a maximum. So there's some flexibility there. The caveat is you don't have to provide a severance benefit to make the non-compete enforceable if you terminate someone for cause. The statute doesn't define cause. So what is cause? I'm sure that will be the subject of future litigation. There's a lot we don't know right now. But the biggest thing is if you have an employee who by all accounts can still be subjected to a non-competition agreement and you believe that will further your interest as an entity, you think it's worth it to have them enter into that agreement, you need to write in a severance benefit to make it enforceable. And the way I read the statute as well would mean that the non-compete could still be enforceable without severance if the employee were to resign. It's silent on that. And I won't bore our listeners with kind of the legal nerd explanation as to why I think that silence means it's okay, but it's there. 

And so there's kind of two options here. You can offer the severance or you can simply put a provision in the agreement that says, hey, if you are terminated by us, the company, without cause, then we all agree that this non-compete provision is deemed, you know, you can ignore it. The other thing about the severance provision piece to it, you can't just say, "Hey, you'll get severance." You have to be precise according to the statute. So, what I've been doing, tell me how you've approached it, Emily. in the situations where we have clients who want that non-compete regardless of the reason for the person's employment ending is essentially saying hey in scenarios where you know you are not terminated for cause you will be eligible for severance equal to a week's worth of your pay at your regular rate at whatever time it is that your employment ends subject of course to signing a release of all claims against the company. That's how I've handled it. Emily, have you had any other ideas on how to handle that situation? No, I think your approach is exactly right. That's also what I've been doing. I think if we had to sum this up for folks, you know, the biggest piece of advice is first make sure you really need this. Like make sure it's going to further your business interest and think about what other options might be available to you and consider those as well. And then make sure your employee can actually be subject to one. Like we said, there are some folks who just can't. You want to be precise with your restrictions. And then finally, you probably want to anticipate some kind of severance benefit or as Matt said, put language in there that thinks about the end of termination and kind of sets up the parameters so you're not surprised when the employment relationship ends about the consequences or lack of consequences. Yeah, include that severance provision, include that severability provision. I know they sound a lot alike, but they're different. And one thing I forgot to mention is you want to include what's called a survivability provision. So that's just a simple sentence or two that says hey anything in this agreement that should be performed after the termination of this agreement that survives the termination of the agreement. Otherwise without that you can make the argument that okay you've agreed to a non-compete but you terminated the contract and therefore none of the contract terms survive. So yeah make sure you need one. Make sure the employee can be subject to one. Don't get greedy in drafting your provisions and include some of those key provisions to help keep this thing alive after the employment's over. 

Well, I think that wraps up today's discussion. I want to thank all of our listeners for joining us for our first episode. If you have any questions or suggestions for future episodes, please let us know. You can visit our labor and employment immigration page at williamsmullen.com. There you'll find out more not only about our team and the types of legal services we provide, but you'll find some written stuff on this very topic as well as other topics that we may cover in the future. Finally, be sure to subscribe to this podcast to be notified when our next episode posts. Thanks for tuning in and let's get back to work.

_{This podcast contains general condensed summaries of actual legal matters, statutes, and opinions for information purposes. It is not meant to be and should not be construed as legal advice. Individuals with particular needs on specific issues should retain our services or the services of other competent counsel.}