Employment Law Update: No Severance, No Non-Compete: Virginia’s New Rule for Employers Who Terminate Without Cause
Date: September 24, 2026
The Core Rule: No Severance, No Non-Compete
The new law, SB170, is straightforward: no severance, no non-compete. If an employer discharges an employee without cause and did not provide severance benefits or other monetary payment, the non-compete is unenforceable. And the employer must have disclosed those severance benefits at the time the non-compete was signed — not after the fact. Previously, Virginia’s non-compete restrictions applied only to “low-wage employees.” SB170 extends the no-severance-no-non-compete rule to all employees.
The law carves out two exceptions. Enforcement remains available if the employee was terminated for cause or if the employee voluntarily resigned.
These changes apply to restrictive covenants entered into, amended, or renewed on or after July 1, 2026. Agreements executed before that date are grandfathered and will not be subject to the new requirements.
The Stakes: Penalties for Violating the No-Severance Rule
Employers who ignore the no-severance-no-non-compete rule face real consequences. Any employer that violates the statute may face civil penalties of up to $10,000 per violation, as determined by the Commissioner. Courts are authorized to void non-compliant agreements entirely and to award affected employees liquidated damages, lost compensation, and reasonable attorneys' fees and costs. The statute also prohibits employers from retaliating against employees who bring claims under the law.
What Counts as "Severance”?
The “no severance, no non-compete” rule hinges on a phrase the statute does not define. The statute does not define "severance benefits or other monetary payment." In general employment practice, severance typically refers to compensation paid to a departing employee beyond wages already earned — for example, a lump-sum payment, continued salary for a specified period, or benefits continuation. Because the statute is silent on the amount, form, or duration of these payments, there is some ambiguity. Employers should work with counsel to establish a reasonable severance framework that would satisfy this requirement and document the arrangement clearly at the time the restrictive covenant is executed.
What Counts as "Cause"?
“Cause” is the exception that saves an employer’s non-compete. The no-severance-no-non-compete rule applies only when an employer terminates without “cause.” If the termination is for “cause,” the non-compete remains enforceable regardless of whether severance was paid. The statute also does not define "cause." In most employment contexts, "cause" refers to serious misconduct by the employee — such as dishonesty, willful violation of company policies, gross negligence, or criminal conduct. Many employment agreements contain their own definitions of cause, and those contractual definitions will likely be relevant. To reduce risk, employers should ensure that their employment agreements include a clear, written definition of "cause" so that there is no ambiguity about when a termination triggers the severance-payment requirement and when it does not.
Preparing for the No-Severance-No-Non-Compete Rule
- Build severance into your non-competes. Under the new rule, a non-compete is only as enforceable as the severance commitment behind it. Update your standard restrictive covenant agreements to include disclosure of the severance benefits or other monetary payment that will be provided if the employee is later terminated without cause.
- Define "cause" in your agreements. If your existing agreements do not include a clear definition of "cause," add one. This will provide important clarity if enforcement becomes an issue.
- Post the required notice. Virginia law requires employers to post a copy of the statute, or a Department-approved summary, in the same location where other required employment notices are displayed. Failure to do so can result in penalties of up to $1,000 for repeated violations.
- Train your HR team. Make sure your human resources professionals and managers understand the new requirements so that termination decisions are handled in a way that preserves the enforceability of restrictive covenants where appropriate.
The Bottom Line: No Severance, No Non-Compete
SB170’s message to Virginia employers is simple: no severance, no non-compete. If you terminate an employee without cause and have not committed to severance, your non-compete will not be enforceable. Employers who act now — by building severance commitments into their agreements, defining cause clearly, and aligning their termination practices — will be best positioned to protect their business interests under the new law. If you need assistance reviewing your non-compete agreements or making termination decisions that ensure your legitimate business interests are protected, please contact your Whiteford employment attorney.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.