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Employment Law Update: Virginia Supreme Court Asked to Clarify Whether Virginia's Non-Compete Statute Covers Employee Non-Solicitation Agreements

Virginia employers may soon receive important guidance on the scope of the Commonwealth's restrictions on restrictive covenant agreements. In Sentry Force Security, LLC v. Barrera, the Supreme Court of Virginia has been asked to review an unpublished Court of Appeals decision holding that Virginia Code § 40.1-28.7:8 may prohibit employee non-solicitation provisions for covered employees.

The issue has taken on increased significance because Virginia's restrictive covenant statute no longer applies only to "low-wage employees." Recent amendments expanded the law's coverage to employees entitled to overtime compensation under the Fair Labor Standards Act, effectively extending the statute's protections to most hourly workers in the Commonwealth. As a result, the Supreme Court's interpretation could affect restrictive covenant agreements used by employers across virtually every industry in Virginia.
 

Background

Virginia enacted Code § 40.1-28.7:8 to prohibit employers from entering into, enforcing, or threatening to enforce a "covenant not to compete" against covered employees. The statute defines a "covenant not to compete" as an agreement that restrains, prohibits, or otherwise restricts an individual's ability, after employment ends, to compete with a former employer.

The case arises from a dispute between a security company and a former employee who had signed a Non-Disclosure and Restrictive Covenant Agreement that included employee and customer non-solicitation provisions but not a traditional non-compete restriction. The Company filed suit seeking, among other things, to enforce the agreement's non-solicitation provisions. The employee alleged that the non-solicitation provision was prohibited by Code § 40.1-28.7:8

The trial court and Court of Appeals interpreted the statute broadly. The Court of Appeals concluded that the statutory definition of a "covenant not to compete" extends beyond traditional non-compete agreements. The Court held that restrictions on a covered employee's ability to compete with a former employer may include provisions preventing the solicitation of former coworkers.

If that interpretation stands, employee non-solicitation provisions could be unenforceable when applied to employees protected by the statute.
 

Why This Case Matters

This case could become the most significant Virginia restrictive covenant decision in years.

When the statute was originally enacted, many employers viewed it primarily as a limitation on the use of traditional non-compete agreements with low-wage workers. The Court of Appeals' decision raises the possibility that the statute may reach a broader category of restrictive covenants, including employee non-solicitation provisions.

The stakes are now considerably higher because the statute's coverage has been expanded to include employees entitled to overtime compensation under the Fair Labor Standards Act. Since most hourly workers fall within that category, the Supreme Court's interpretation could affect large segments of Virginia's workforce and the restrictive covenant agreements used across industries such as government contracting, healthcare, hospitality, retail, transportation, manufacturing, construction, logistics, staffing, and security services.
 

Looking Ahead

The Supreme Court has not yet determined whether it will grant the petition for appeal. However, given the growing importance of Virginia Code § 40.1-28.7:8 and the significant impact the Court of Appeals' decision could have on employers throughout the Commonwealth, the case presents an important opportunity for the Supreme Court to provide much-needed clarity regarding the distinction between non-compete and non-solicitation covenants under Virginia law.

For employers that rely on employee non-solicitation provisions to protect their workforce and business relationships, the Court's ultimate decision could reshape the restrictive covenant landscape in Virginia for years to come. Whiteford's Labor and Employment Practice Group will continue tracking developments in this fast-changing area and keep clients informed as additional guidance becomes available.

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