SB 360 — Employment; definitions, covenants not to compete prohibited, limitations, civil penalty.

SESSION SENATE SUBSTITUTE 24106072D24106886D SENATE BILL NO.

360 FLOOR AMENDMENT IN THE NATURE OF A SUBSTITUTE (Proposed by Senatorthe McPikeSenate Committee on JanuaryCommerce 25,and Labor on February 5, 2024) (Patron Prior to Substitute––Senator VanValkenburg) A BILL to amend and reenact § 40.1-28.7:8 of the Code of Virginia, relating to employment;

covenants Be it enacted by the General Assembly of Virginia:Virginia:lty.

limitations;

"Covenant,"Business "covenantentity" not to compete" means aany covenant(i) orpartnership, agreement, including a provisionlimited ofpartnership or a restrictslimited anliability individual'scorporation. ability, following the termination of the individual's employment, to compete with his former employer.

A(ii) "covenantlimited notliability tocompany, compete"including shall not restrict an employee from providing a serviceseries tolimited aliability customercompany; or client of the employer if the employee does not initiate contact with or solicit the customer or client.

"Low-wageor employee"(Sii) means"Covenant annot employeeto whosecompete" averagemeans weeklya earnings,covenant calculatedor byagreement, dividingincluding Na theprovision employee'sof earningsa duringcontract the period of 52employment, weeksbetween immediatelyan precedingemployer theand date of termination of employee wasthat actuallyrestrains, paidprohibits, duringor theotherwise 52-weekrestricts period,an areindividual's lessability, thanfollowing the averagetermination weekly wage of the Commonwealthindividual's asemployment, determined pursuant to subsectioncompete Bwith ofhis §former 65.2-500.employer.

"Low-wageA employee""covenant includesTnot interns,to students,compete" apprentices,shall not restrict an employee from providing a service to a customer or traineesclient employed,of the employer if the employee does not initiate contact with or withoutsolicit pay,the atcustomer aor trade"Low-wage employee" means an employee whose average weekly earnings, calculated by dividing A the employee's earnings during the period of 52 weeks immediately preceding the date of terminaTion of employment by 52, or occupationif inan orderemployee worked fewer than 52 weeks, by the number of weeks that the employee was actually paid during the 52-week period, are less than the average weekly wage of Ehe Commonwealth as determined pursuant to gainsubsection workB orof educational§ experience.65.2-500.

"Low-wage employee" also includes aninterns, individualstudents, wEoapprentices, or trainees employed, with or without pay, at a trade or occupation in has independently contracted with another person to perform services independent of an employment relationship and who is compensated for such services by such person at an hourly rate that is less than the median hourly wage for the Commonwealth for all occupations as reported, for the preceding Uear, by the Bureau of Labor Statistics of the U.S.

For the purposes of this section,secBion, "low-wage employee" shall not include any employee whose earnings are derived, in whole or in Spre"Owner predominantof part,a frombusiness salesentity" commissions,means incentives,any or(i) bonusespartner, paidin to the employeecase byof thea emUloyer.business entity that is aoyer.

B.partnership;

No(ii) employermember, shallin enterthe into,case enforce,of or threaten to enforce a covenantbusiness notentity tothat competeis wBtha anylimited low-wageliability employee.company;

intendedor to(iii) prohibit36 theowner taking,of misappropriating,capital threatingstock, toin misappropriate,the orcase sharing of certainmentsa information,business includingentity tradethat secrets,is asa definedcorporation. in § 59.1-336, and proprietary or confidentialT 36 information.

37 D."Ownership interest" means (i) a partnership interest, in the case of business entity that is a / 38 partnership;

A(ii) low-wage An employee may bring a civilmembership actioninterest, in athe courtcase of competenta jurisdictionbusiness againstentity / 38 any former employer or other person that attemptsis to enforce a covenantlimited notliaTility to compete against Tuch 39 employeecompany; in violation of this section.

Anor action(iii) undera thiscapital sectionstockholder, shallin bethe broughtcase within twoUyears of learnsa ofbusiness theentity covenantthat notis toa compete,corporationU (iii)from thewhich datea theselling employmentbusiness relationshipentity ishas terminated,a orright (iv)to thereceive datea themajority employershare takesof anydistributions stepuponor todissolution enforceor theother covenantliquidation notof tothe compete.business entity.

TheT courtB. shall have jurisdiction to void any covenant not to compete with a low-wage an employee and to order all E appropriate relief, including enjoining the conduct of any person or employer, ordering payment of liquidated damages, and awarding lost compensation, damages, and reasonable attorney fees and costs.

employeeNo foremployer bringingshall enter into, enforce, or threaten to enforce a civilcovenant actionnot pursuantto compete wEth any low-wage employee, subject to thisthe section.limitations of subsection C.

orC. retaliate against a low-wage an E.

1.

Nothing in this section shall serve to limit the creation or application of nondisclosure of certain information, including trade secrets, as defined in § 59.1-336, and proprietary or confidential information or (ii) the solicitation of an employer's clients that an employee learned about during the course of employment, provided that such nondisclosure agreement does not otherwise restrict competition in violation of this section.

2.

Nothing in this section shall prohibit any (i) person who sells the goodwill of a businesS entity;

(ii) owner of a business entity selling or otherwise disposing of such owner's ownership intere3t in the assets together with the goodwill of the business entity, (b) all or substantially all of the operatingrating assets of a division or a subsidiary of the business entity together with the goodwill of such division or subsidiary, or (c) all of the ownership interest of any subsidiary from agreeing with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business entity, division, or subsidiary conducts business, provided that the buyer, or any person deriving title to such goodwill or ownership interest from the buyer, carries on a like business therewith.

SB360S2 2 of 2 3.

Nothing in this section shall prohibit any partner in a partnership, including a limited partnership or a limited liability partnership, upon or in anticipation of a dissolution of such partnership or such partner's dissociation from such partnership, from agreeing that such partner will not carry on a similar business within a specified geographic area where such partnership conducts business, provided that any other member of the partnership, or any person deriving title to such partnership or its goodwill from any member of the partnership, carries on a like business therewith.

4.

Nothing in this section shall prohibit any member of a limited liability company, including a series limited liability company, upon or in anticipation of a dissolution of such limited liability company or such member's dissociation from such limited liability company, from agreeing that such member will not carry on a similar business within a specified geographic area where such limited liability company conducts business, provided that any other member of such limited liability company, or any person deriving title to such limited liability company or its goodwill from any member of the limited liability company, carries on a like business therewith.

D.

A low-wage An employee may bring a civil action in a court of competent jurisdiction against any former employer or other person that attempts to enforce a covenant not to compete against such employee in violation of this section.

An action under this section shall be brought within two years of the latter of (i) the date the covenant not to compete was signed, (ii) the date the low-wage employee learns of the covenant not to compete, (iii) the date the employment relationship is terminated, or (iv) the date the employer takes any step to enforce the covenant not to compete.

The court shall have jurisdiction to void any covenant not to compete with a low-wage an employee and to order all appropriate relief, including enjoining the conduct of any person or employer, ordering payment of liquidated damages, and awarding lost compensation, damages, and reasonable attorney fees and costs.

No employer may discharge, threaten, or otherwise discriminate or retaliate against a low-wage an employee for bringing a civil action pursuant to this section.

E.

If the court finds a violation of the provisions of this section, the plaintiff shall be Sntitledentitled to recover reasonable costs, including costs and reasonable fees for expert witnesses, and attorne3attorney fees from the former employer or other person who attempts to enforce a covenant not to compete against such plaintiff.

employer or other person who attempts to enforce a covenant not to compete against s0ch G.

An employer that fails to post a copy of this section or an approved summary of this section shall be issued by the Department a written warning for the first violation, shall be subject to a civil penalty not to exceed $250 for a second violation, and shall be subject to a civil penalty not to exceed $1,000 for a SB360S1 2 of 2 third and each subsequent violation as determined by the Commissioner.

That nothing in this act shall invalidate, alter, or otherwise affect any contractscontracts, covenants, or covenantsagreements entered into or renewed prior to July 1, 2024.