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Two states on opposite coasts are reshaping the rules governing noncompete agreements in their jurisdictions. Virginia has amended its law to prohibit enforcement of noncompetes against employees who are terminated without cause in the absence of certain severance benefits, while Washington has gone further by enacting a near-total ban on noncompete agreements for all workers.

Together, these laws reflect a broader national trend of restricting noncompetes and may call for businesses with employees in either state to review their current agreements and employment practices for compliance.

Virginia: New Protections for Discharged Employees

Virginia’s existing noncompete statute prohibits employers from entering into or enforcing noncompete agreements with “low-wage employees,” a category of workers that includes:

• Workers earning less than the state’s average weekly wage (currently $1,507.01 per week or $78,364.52 annualized);
• Workers entitled to overtime pay under the Fair Labor Standards Act, regardless of earnings;
• Interns, students, apprentices and trainees employed in a trade or occupation in order to gain work or educational experience; and
• Lower-paid independent contractors (those whose hourly rate is less than the median hourly wage for all Virginia occupations as reported for the preceding year by the Bureau of Labor Statistics).

The amended statute, recently signed into law and effective July 1, retains all of those existing protections but adds an important new layer: A noncompete agreement between an employer and any employee is now unenforceable if the employer discharges the employee without providing “severance benefits or other monetary payment,” unless the employee is terminated for “cause” – terms that are not defined under the law. Importantly, this means a noncompete that is currently valid under existing law could become unenforceable if it is amended after the effective date and the employee is later terminated without cause and without receiving severance.

The law further requires that the terms of any “severance benefits or other monetary payment” be disclosed at the time the noncompete is signed but does not define or otherwise opine on what would constitute sufficient consideration in this regard.

The statute does not invalidate, alter or otherwise affect any contract, covenant or agreement entered into, amended or renewed prior to July 1.

Virginia Takeaways

In light of these changes, businesses with employees in Virginia should consider:

• Updating their standard noncompete agreements so that any entered into on or after July 1 comply with the statute’s requirements that the terms of any severance benefits or other monetary payments are disclosed at the time the noncompete is executed
• Reviewing termination practices to ensure compliance with the statute’s requirements that employees with agreements entered into, amended or renewed after July 1 are either: (1) terminated for cause or (2) receive severance benefits or other monetary payment at the time of termination
• Posting the statutory section (or an approved summary) alongside other required workplace postings.

Washington: A Near-Total Ban on Noncompetes

Washington’s legislature has taken a much more aggressive step – effectively banning noncompete agreements for all workers in the state.

Washington’s existing noncompete statute imposes a series of conditions for valid noncompetes:

• The worker earns above an income threshold of $126,858.83 per year for employees, $317,147.09 for independent contractors in 2026. In most other states, the income threshold is between $75,000 and $80,000. The agreement is disclosed in writing when a prospective employee accepts an offer of employment;
• or if the agreement becomes enforceable only later due to changes in the employee’s compensation, the employer specifically discloses that the agreement may be enforceable against the employee in the future;
• If an employee is being asked to sign the agreement after the commencement of employment, the employee is provided additional “independent consideration”; and
• If the employee is separated as part of a reduction in force, the employee is provided compensation equivalent to the employee’s base salary at the time of termination for the noncompete period minus compensation earned through subsequent employment during the noncompete period.

The amended statute, which takes effect June 30, 2027, eliminates these conditions and replaces them with a flat prohibition on noncompete covenants for “Washington-based workers and businesses.” The legislature’s stated rationale in doing so is to “incentivize innovation and entrepreneurship, increase wages, and even reduce health care costs,” finding that noncompetes “hinder innovation and entrepreneurship, suppress wages, reduce job mobility, and ultimately harm consumers and the economy.”

The new law expands the definition of “noncompetition agreement” to include “any provision in an agreement that threatens, demands, requires or otherwise effectuates that an individual return, repay or forfeit any right, benefit or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.” In addition, certain agreements between performers and event spaces or third-party schedulers for performers at event spaces are also covered.

The new law also applies to all enforcement proceedings commenced on or after the effective date, regardless of when the cause of action arose. Consequently, noncompete agreements signed years ago may be subject to the new ban if enforcement is sought after June 30, 2027.

Agreements that will continue to be excluded from coverage under the updated Washington statute include:

• Non-solicitation agreements, now limited to prohibitions lasting no longer than 18 months following termination of employment that prohibit an employee from: (1) soliciting other employees to leave employment; or (2) soliciting away the business of any current or prospective customer, patient, or client with whom the employee established or substantially developed a direct relationship through the employee’s work for the employer;
• Confidentiality agreements;
• Covenants prohibiting use or disclosure of trade secrets or inventions;
• Covenants entered into by the purchasers or sellers of the goodwill of a business or otherwise acquiring or disposing of an ownership interest (if the person signing the covenant purchases, sells, acquires or disposes of an interest representing 1% or more of the business); and
• Covenants entered into by a franchisee in connection with a franchise sale.

The amended statute also excludes from coverage written agreements to repay out-of-pocket educational expenses provided that the agreement: (1) expires within 18 months of the employee’s start date; (2) limits repayment to the pro rata portion of the remaining time of the 18-month period at the time of enforcement; and (3) releases the employee from the obligation to repay if the employee resigns for “good cause” under Washington law.

Following the effective date, covered employers will be in violation of the statute if they:

• Enforce, attempt to enforce or threaten to enforce a noncompetition covenant against an employee or contractor;
• Represent that an employee or contractor is subject to a noncompetition covenant; or
• Enter into or attempt to enter into a noncompetition covenant with an employee or contractor.

Employers will have until Oct. 1, 2027 to make reasonable efforts to provide written notice to all current and former employees and independent contractors whose noncompetition covenant is still within its effective period that their noncompete is void and unenforceable.

Washington Takeaways

Businesses with employees in Washington should consider:

• Identifying all employees and independent contractors who are currently subject to noncompete agreements and prepare to issue the required written notice by Oct. 1, 2027, informing them that their noncompetes are no longer enforceable
• Shifting to permissible alternatives, such as narrowly tailored non-solicitation agreements, confidentiality agreements and trade secret protections
• Watching for forfeiture-for-competition clauses, as the new law’s definition of “noncompetition covenant” includes provisions requiring the return, repayment or forfeiture of benefits as a consequence of engaging in competitive activity
• Reviewing and, if necessary, updating any equity plans, deferred compensation agreements, or similar arrangements containing provisions that are now prohibited under Washington law
• Making appropriate staff and leaders are aware of the new restrictions, because  even representing to a Washington employee that they are subject to a noncompete – or threatening to enforce a Washington employee’s noncompete – is a violation that can trigger statutory penalties and attorney fees.  

Opinions and conclusions in this post are solely those of the authors unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The authors have provided the links referenced above for information purposes only and by doing so, do not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the authors to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the authors if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.