Virginia Limits Noncompetes After Without-Cause Discharge

On April 13, 2026, Virginia enacted Senate Bill 170 (SB 170) Chapter 883, which provides that a noncompete will be unenforceable for agreements entered into, amended, or renewed on or after July 1, 2026, if the employer discharges the employee without cause and does not provide disclosed severance or other monetary payment.

This update applies to Virginia employers using non-compete agreements on or after July 1, 2026.

What Employers Need to Do

• Update Virginia noncompete templates to clearly state any severance benefits or other monetary payment that will support enforceability after a without-cause discharge, as the payment must be disclosed when the covenant is signed.

• Consider defining “cause” in agreements and related policies, as the statute does not define that term and leaves a key trigger for enforceability open to dispute.

• Reassess restrictive-covenant strategy for Virginia, including whether to rely more heavily on nondisclosure agreements, trade secret protections, and carefully drafted non-solicitation language.

• Confirm whether the worker is already covered by Virginia’s existing “low-wage employee” restrictions before using any noncompete at all, including whether the worker is entitled to overtime under the Fair Labor Standards Act (FLSA).

• Update workplace postings to include a copy of the statute or an approved summary where other required notices are posted. Posting failures can trigger escalating penalties.

Overview

• Senate Bill 170 amends Virginia Code § 40.1-28.7:8 and, beginning July 1, 2026, a noncompete is unenforceable if the employer discharges the employee without cause and does not provide severance benefits or other monetary payment that was disclosed upon execution of the covenant, unless the employee is discharged for cause.

• The new restriction applies prospectively only to agreements entered into, amended, or renewed on or after July 1, 2026, and does not apply retroactively to earlier agreements.

• Although SB 170 adds a new discharge-related rule, Virginia’s existing restrictions on non-competes for “low-wage employees” remain in place. This includes workers who are entitled to overtime under the Fair Labor Standards Act (FLSA), interns, students, apprentices, trainees, and certain lower-paid independent contractors.

• The Virginia Department of Labor and Industry has posted the current average weekly wage threshold at $1,507.01 per week (about $78,364.52 annually) for 2026.

• The statute defines a “covenant not to compete” broadly but also states that such a covenant may not restrict an employee from providing services to a customer or client of the employer if the employee does not initiate contact with or solicit that customer or client.

• The statute expressly preserves nondisclosure agreements protecting trade secrets and proprietary or confidential information.

• Employees may bring civil actions alleging unlawful enforcement, and courts may void unlawful covenants and award relief that can include injunctions, liquidated damages, lost compensation, damages, attorneys’ fees, and costs.

Why This Matters

Senate Bill 170 expands Virginia’s noncompete restrictions beyond the prior focus on low-wage and overtime-eligible workers by tying enforceability to how the employment relationship ends and whether the employer committed upfront to severance or other monetary consideration.

That change means noncompete enforceability in Virginia is now more closely linked to termination decisions, severance design, and contract drafting, rather than only to worker classification or compensation level.

The statute does not define “cause” or set a minimum severance amount; as a result, employers face added interpretation risk and may have less flexibility to preserve enforceability after a without-cause discharge if the agreement did not disclose the payment at signing.

Key Risks for Employers

• A noncompete may fail at the outset if the agreement does not disclose the severance benefits or other monetary payment that would support enforcement after a without-cause discharge.

• The undefined terms “cause” and “severance benefits or other monetary payment” create litigation risk and uncertainty over what terminations and payments preserve enforceability.

• Employees may sue over attempted enforcement of unlawful covenants, and courts may void the covenant and award damages, liquidated damages, lost compensation, attorneys’ fees, and costs.

• Violations can trigger $10,000 per violation civil penalties, and posting failures can trigger separate notice penalties.

• Employers that continue to use legacy templates without reconciling Virginia’s low-wage rules, overtime-based coverage, and new discharge-based restrictions may face avoidable unenforceability and enforcement exposure.

Additional Information

Senate Bill 170 does not expressly resolve whether all non-solicitation provisions fall within the statutory definition of a “covenant not to compete,” but recent Virginia authority remains important because the Court of Appeals in Sentry Force Security, LLC v. Barrera recognized that Virginia law allows restrictions on direct customer solicitation while also signaling limits on other forms of restrictive covenants involving covered workers.

The new law also contains no express sale-of-business carve-out, which may matter in transactional settings where employers might otherwise expect broader protection for noncompetes.

Source Reference

• Virginia LIS SB 170 – Protection of employees; covenants not to compete, discharged employees.

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