Starting July 1, 2026, a Virginia employer that lays off a worker without cause and hands them nothing on the way out loses the right to enforce that worker's noncompete agreement — full stop, regardless of how senior or highly paid the employee was. That's the practical effect of SB 170, a law Governor Abigail Spanberger signed on April 13, 2026, and it flips an assumption a lot of employers have relied on for years: that a signed noncompete is enforceable on its own, with no strings attached.
If your business operates in Virginia and uses noncompete or non-solicitation agreements — even just for a handful of key employees — this law changes what "enforceable" means, and it changes it in a way that has real payroll and budgeting consequences, not just legal ones.
What SB 170 Actually Does
Virginia already banned noncompetes for "low-wage" workers (roughly those earning less than the state's average weekly wage). SB 170 doesn't touch that rule — it layers a new, separate restriction on top of it that applies to every employee, regardless of income.
Under the new law, a noncompete is unenforceable if:
- The employer discharges the employee without cause, and
- The employer does not provide severance benefits or other monetary payment in connection with that termination
Put differently: if you want to hold a laid-off employee to a noncompete, you now have to pay for that right. A noncompete standing alone, with nothing changing hands at termination, is no longer good enough for anyone let go without cause — not just your lowest-paid staff.
There's a second, easy-to-miss requirement: any severance or payment that's meant to support the noncompete has to be disclosed in the agreement itself, at the time the employee signs it — not improvised later at the exit interview.
Who's Covered and What Still Works
The law's exceptions are where a lot of employers will look for room to maneuver, so it's worth being precise about them.
Noncompetes remain enforceable when:
- The employee is terminated for cause (and isn't otherwise a protected low-wage worker), or
- The employee is terminated without cause and receives severance or other monetary compensation (and isn't otherwise a protected low-wage worker)
Noncompetes are unenforceable when:
- The worker qualifies as "low-wage" under Virginia's existing rule (this protection stands regardless of the new severance requirement), or
- The worker is non-exempt (overtime-eligible) under the FLSA, or
- The worker is terminated without cause and receives no severance or payment
Two details create real ambiguity for employers trying to plan ahead. First, SB 170 doesn't define "cause" — that's left to the courts, which means a termination you'd casually describe as "not working out" may or may not qualify, and getting it wrong voids the agreement you were counting on. Second, the law sets no minimum severance amount. Legal commentary on the statute has flagged that a token, nominal payment could be challenged as insufficient to support enforcement, but there's no bright-line dollar figure or percentage to design around yet — that will likely take case law or agency guidance to settle.
The law applies to noncompete and non-solicitation covenants entered into, amended, or renewed on or after July 1, 2026. Agreements signed before that date aren't automatically rewritten by the statute, but any agreement you touch — even a routine renewal — after the effective date pulls the employee into the new rules.
Why This Isn't Just an HR Problem
Employment attorneys are (rightly) focused on contract language and litigation exposure. But SB 170 also creates a bookkeeping problem that's easy to underestimate: severance tied to noncompete enforcement is now a cost of doing business with restrictive covenants, and it needs to show up in your numbers before you're staring at a termination, not after.
A few practical implications:
- Severance becomes a planned line item, not a surprise. If you rely on noncompetes for a sales team, an engineering lead, or anyone with access to client lists or pricing strategy, you should be budgeting for the possibility of a severance payout the same way you'd budget for accrued PTO liability — as a known, if contingent, obligation tied to specific employees and agreements.
- You need to track which agreements carry a severance promise, and for how much. Once severance terms are baked into a noncompete, you have a de facto liability sitting on a piece of paper in an HR file. If your books don't reference it anywhere, you'll find out what it's worth the day you actually terminate someone — which is the worst possible time to be doing that math.
- Penalties are not trivial. Courts can void noncompetes found unlawful under the Act, issue injunctions, and award damages, attorneys' fees, and civil penalties of up to $10,000 per violation. For a small or mid-size employer, a handful of improperly drafted agreements enforced against the wrong people is a real financial exposure, not a rounding error.
What Virginia Employers Should Do Before July 1
- Inventory existing noncompete and non-solicitation agreements for Virginia-based employees, and flag any coming up for renewal or amendment after July 1, 2026 — those get pulled into the new rules the moment you touch them.
- Decide, in advance, whether you're willing to pay severance to keep a noncompete enforceable. This is a business decision as much as a legal one: for some roles, the noncompete's value to you may not be worth the guaranteed severance cost; for others (a departing salesperson with your client list), it clearly is.
- Build severance amounts into the agreement text itself, not a side letter or a verbal promise — the disclosure has to happen at signing.
- Write a working definition of "for cause" into your termination policies, and document performance issues consistently, since a vague or inconsistent record makes "cause" harder to prove if a noncompete dispute ends up in court.
- If you operate in multiple states, don't assume this is Virginia-only forever — several other states have been moving toward similar severance-linked noncompete restrictions, and tracking a patchwork of state rules is only going to get more complex.
Keep Your Compliance Costs Visible, Not Buried in a File Cabinet
Severance obligations tied to noncompete agreements are exactly the kind of contingent liability that's easy to lose track of when it lives only in a signed PDF somewhere in HR. Beancount.io's plain-text accounting makes it straightforward to tag and track commitments like this alongside your regular payroll and accrual entries — so when a termination happens, you already know what it costs, instead of finding out in the moment. Get started for free and keep every obligation, contingent or not, visible in your books.