Effective July 1, 2026, two separate bills enacted in the 2026 Virginia General Assembly session amend Va. Code § 40.1-28.7:8 — the statute prohibiting covenants not to compete with low-wage employees. Senate Bill 170 adds a new prohibition that renders any non-compete unenforceable when an employer discharges an employee without providing severance benefits or other monetary payment, unless the discharge is for cause. House Bill 627 adds health care professionals to the categorical prohibition on covenants not to compete, subject to three exceptions specific to that group: a sale-of-business carve-out, training-repayment provisions for professionals employed fewer than five years, and narrowly construed non-solicitation provisions.
Statutory Background
Section 40.1-28.7:8, enacted in 2020, prohibits Virginia employers from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee.” A “low-wage employee” is defined to mean an employee whose average weekly earnings during the 52 weeks preceding termination are less than the average weekly wage of the Commonwealth as determined under § 65.2-500, or — regardless of average weekly earnings — any employee entitled to overtime compensation under 29 U.S.C. § 207. The category also includes interns, students, apprentices, and trainees (paid or unpaid), and certain independent contractors compensated at less than the median hourly wage for the Commonwealth.
Before the 2026 amendments, the statute permitted nondisclosure agreements that protected trade secrets, as defined in § 59.1-336, and other proprietary or confidential information. The statute also created a private right of action for low-wage employees against any former employer or other person that attempts to enforce a covenant in violation of the statute, with a two-year limitations period running from the latest of (i) the date the covenant was signed, (ii) the date the low-wage employee learns of the covenant, (iii) the date the employment relationship is terminated, or (iv) the date the employer takes any step to enforce the covenant. The statute provided for liquidated damages, lost compensation, damages, reasonable attorney fees and costs, a $10,000 civil penalty for violations, and a notice-posting requirement enforced by graduated civil penalties.
Senate Bill 170 and House Bill 627 each amend and reenact § 40.1-28.7:8. The two bills address different aspects of Virginia’s non-compete framework and have been harmonized by the Code Commission into a single codified section.
SB 170: Severance-on-Discharge Requirement and Expanded Private Right of Action
SB 170 adds a new subsection to § 40.1-28.7:8 providing that no covenant not to compete between an employer and an employee is enforceable if the employer discharges the employee from employment without providing severance benefits or other monetary payment, unless the discharge is for cause. The severance benefits or other monetary payment “shall be disclosed upon execution of the covenant not to compete.”
This protection is not limited to low-wage employees. The severance-on-discharge requirement applies to all non-competes regardless of the discharged employee’s wage level. An employer that discharges an employee subject to a non-compete — at any earnings level — must either (i) provide severance benefits or other monetary payment, (ii) discharge the employee for cause, or (iii) accept that the covenant will be unenforceable as to that employee. The statute requires disclosure of the severance or other monetary payment at the time the covenant is signed, foreclosing after-the-fact arrangements designed to satisfy the requirement only upon discharge.
SB 170 then extends the statute’s private right of action correspondingly. The prior text limited the cause of action to “a low-wage employee.” SB 170 substitutes “an employee” for “a low-wage employee” in the standing clause and in the court’s voiding power, so that any employee subject to a non-compete that has become unenforceable under the new severance-on-discharge rule (or any other provision of the section) may bring a civil action to void the covenant and recover liquidated damages, lost compensation, damages, and reasonable attorney fees and costs. As codified, however, subsection D’s anti-retaliation clause still runs only to “a low-wage employee or health care professional,” so the anti-retaliation protection retains a wage floor even as the private right of action and the court’s voiding power do not.
SB 170 also expands the civil penalty provision. The $10,000 civil penalty, paid to the Commissioner for deposit in the general fund, applies to any employer that violates subsection B (the prohibition on non-competes with low-wage employees) — and now also to any employer that violates the new severance-on-discharge subsection. Violations of the severance-on-discharge requirement are therefore independently sanctionable by civil penalty in addition to any private recovery and the voiding of the covenant.
HB 627: Categorical Protection for Health Care Professionals and Targeted Carve-Outs
HB 627 takes a different approach. It adds a new defined category — “Health care professional” — meaning “any person licensed, registered, or certified by the Board of Medicine, Nursing, Counseling, Optometry, Psychology, or Social Work.” The bill then extends the statute’s flat prohibition on non-competes to that group: no employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any low-wage employee or health care professional. The statute’s private right of action, the court’s voiding power, and the anti-retaliation protection are likewise extended to health care professionals.
HB 627 then adds three new provisions that carve out categories of restrictive covenants and related agreements that remain permissible with respect to health care professionals. As codified, the pre-existing nondisclosure carve-out has been relocated to subsection H(1); HB 627’s sale-of-business exception is codified at subsection H(2); and HB 627’s training-repayment and narrow non-solicitation provisions are codified as a new subsection I, at I(1) and I(2) respectively.
Sale-of-business carve-out (subsection H(2)). Non-competes are permitted with a health care professional or such person’s business entity as part of a sale of business when the transaction includes the sale of all or substantially all of (a) the operating assets together with the goodwill of the health care professional’s business entity, (b) the operating assets of a division or subsidiary of that entity together with the goodwill of that division or subsidiary, or (c) the ownership interest of the entity or any division or subsidiary. In such transactions, the seller and buyer may enter into a covenant not to compete or similarly restrictive covenant, “provided that such covenant not to compete or similarly restrictive covenant is reasonable in scope, duration, and geographic area.” HB 627 thus codifies for health care professionals a familiar common-law sale-of-business non-compete exception, while subjecting it to an explicit statutory reasonableness standard.
Training-repayment provisions (subsection I(1)). Employers of health care professionals may include in their employment agreements — through a promissory note or otherwise — provisions requiring repayment of all or a prorated portion of recruitment-related costs. The statute defines the permissible categories broadly to include relocation expenses, signing or retention bonuses, other remuneration provided to induce relocation or establishment of a practice in a specified geographic area, and recruiting, education, or training expenses. Repayment provisions apply only to a departing health care professional who has been employed fewer than five years, and the statute declares that such provisions “shall be valid and enforceable by law.” HB 627 thus permits training-repayment provisions — sometimes called TRAPs — in the health care professional context, subject to the five-year cap on the look-back window.
Narrow non-solicitation provisions (subsection I(2)). Employers of health care professionals may include in their employment agreements provisions requiring the professional, for the benefit of the employer and for a stated period following termination, to refrain from soliciting or attempting to solicit any business from any of the employer’s customers (including actively sought prospective customers) with whom the employee had material contact during employment, for purposes of providing products or services that are the same or substantially similar to those provided by the employer. The statute carves out notices or communications required by state or federal law. Any reference to a prohibition against soliciting or attempting to solicit customers “shall be narrowly construed” to apply only to (i) the health care professional’s customers, including actively sought prospective customers, with whom the health care professional had material contact during employment, and (ii) products and services that are the same as or substantially similar to those provided by the employer. As with the sale-of-business carve-out, the statute declares that compliant non-solicitation provisions “shall be valid and enforceable by law.”
Analysis
Taken together, SB 170 and HB 627 mark Virginia’s most significant expansion of statutory protection against covenants not to compete since the 2020 enactment of § 40.1-28.7:8.
Severance protection. SB 170’s most consequential change is universal in scope. Any employee at any income level whose employer discharges them without severance — and without cause — can render the non-compete unenforceable. The disclosure requirement at execution prevents employers from satisfying the rule by offering after-the-fact discretionary severance contingent on signing a release. The provision aligns Virginia with the small but growing group of jurisdictions that condition non-compete enforceability on meaningful post-termination compensation, and it gives discharged employees a powerful affirmative defense — and an affirmative cause of action with attorney fees — when an employer attempts to enforce a covenant after a no-cause discharge unaccompanied by severance.
Protection for health care professionals. HB 627 adds Virginia to the list of states that categorically prohibit non-competes with most licensed health care professionals. The defined category sweeps broadly — it captures licensure or registration by the Boards of Medicine, Nursing, Counseling, Optometry, Psychology, and Social Work, and so encompasses physicians, nurses (RN and LPN, and likely advanced-practice registered nurses), licensed professional counselors, licensed clinical social workers, optometrists, and psychologists. Employers of these professionals can no longer rely on traditional non-competes to restrict where their former clinicians practice.
Carve-outs for health care professionals. HB 627 balances the categorical prohibition with three carve-outs that recognize legitimate employer interests. The sale-of-business exception preserves the longstanding rule that goodwill purchased in an acquisition can support reasonable competitive restrictions, while imposing an express statutory reasonableness standard. The training-repayment exception preserves employers’ ability to recoup specific recruitment and training costs from professionals who leave within the first five years of employment, subject to the statutory cap. The non-solicitation carve-out preserves narrow customer non-solicitation restrictions but bounds them by a “material contact” limit and a same-or-substantially-similar-services requirement, codifying the analysis many Virginia courts have applied to non-solicit clauses in the absence of statute. Each carve-out is declared “valid and enforceable by law,” which should curtail collateral arguments that the carve-outs are otherwise unenforceable as restraints of trade.
Remedies. SB 170’s extension of the private right of action and the court’s voiding power to all employees (for the new severance-on-discharge rule and the section generally), and HB 627’s extension of the private right of action, voiding power, and anti-retaliation protection to health care professionals (for the categorical prohibition), substantially broaden who can sue under § 40.1-28.7:8. Both extensions carry the same remedies framework — voiding of the covenant, liquidated damages, lost compensation, damages, and reasonable attorney fees and costs — and both retain the two-year limitations period and the four-event accrual trigger. As codified, however, the anti-retaliation clause in subsection D still runs only to “a low-wage employee or health care professional,” so counsel considering retaliation claims should read the standing clause and the anti-retaliation clause separately.
Grandfather differences. Counsel reviewing existing non-compete agreements should note the differing grandfather clauses. SB 170 preserves contracts entered into, amended, or renewed before July 1, 2026; HB 627 preserves only contracts entered into or renewed before that date.
Together, the 2026 amendments produce a non-compete landscape meaningfully more protective of Virginia workers than the 2020 baseline.
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