Virginia has drawn a bright line for employers: If you terminate an employee without cause and don’t provide for severance, you cannot enforce a noncompete. Governor Abigail Spanberger recently signed SB170 into law, codifying this “no severance, no noncompete” rule, effective July 1, 2026. If your company uses noncompetes, nonsolicitation agreements, or other restrictive covenants, now is the time to review your practices.
Core Rule
SB170 is straightforward: no severance, no noncompete. If an employer discharges an employee without cause and didn’t provide severance benefits or other monetary payment, the noncompete is unenforceable. And the employer must have disclosed the severance benefits at the time the noncompete was signed—not after the fact. Previously, Virginia’s noncompete restrictions applied only to “low-wage employees.” SB170 extends the no-severance-no-noncompete rule to all employees.
The law carves out two exceptions. Enforcement remains available if the employee was terminated for cause or if the employee voluntarily resigned.
These changes apply to restrictive covenants entered into, amended, or renewed on or after July 1, 2026. Agreements executed before that date are grandfathered and won’t be subject to the new requirements.
Stakes: Penalties for Violating the No-Severance Rule
Employers that ignore the no-severance-no-noncompete rule face real consequences. Any employer that violates the statute may face civil penalties of up to $10,000 per violation, as determined by the Commissioner of Labor and Industry.
Courts are authorized to void noncompliant agreements entirely and to award affected employees liquidated damages, lost compensation, and reasonable attorneys’ fees and costs. The statute also prohibits employers from retaliating against employees who file claims under the law.
What Counts as ‘Severance’?
The no-severance-no-noncompete rule hinges on a phrase the statute doesn’t define “severance benefits or other monetary payment.” In general employment practice, severance typically refers to compensation paid to a departing employee beyond wages already earned—for example, a lump-sum payment, continued salary for a specified period, or benefits continuation. Because the statute is silent on the amount, form, or duration of these payments, there’s some ambiguity.
You should work with counsel to establish a reasonable severance framework that would satisfy this requirement and document the arrangement clearly at the time the restrictive covenant is executed.
What Counts as ‘Cause’?
“Cause” is the exception that saves an employer’s noncompete. The no-severance-no-noncompete rule applies only when an employer terminates without “cause.” If the termination is for “cause,” the noncompete remains enforceable regardless of whether severance was paid.
But the statute doesn’t define “cause” either. In most employment contexts, “cause” refers to serious misconduct by the employee—such as dishonesty, willful violation of company policies, gross negligence, or criminal conduct. Many employment agreements contain their own definitions of cause, and those contractual definitions will likely be relevant. To reduce risk, you should ensure your employment agreements include a clear, written definition of “cause” so there’s no ambiguity about when a termination triggers the severance-payment requirement and when it does not.
Preparing for the No-Severance-No-Noncompete Rule
Consider taking the following steps:
- Build severance into your noncompetes. Under the new rule, a noncompete is only as enforceable as the severance commitment behind it. Update your standard restrictive covenant agreements to include disclosure of the severance benefits or other monetary payment that will be provided if the employee is later terminated without cause.
- Define “cause” in your agreements. If your existing agreements don’t include a clear definition of “cause,” add one. This will provide important clarity if enforcement becomes an issue.
- Post the required notice. Virginia law requires employers to post a copy of the statute, or a department-approved summary, in the same location where other required employment notices are displayed. Failure to do so can result in penalties of up to $1,000 for repeated violations.
- Train your HR team. Make sure your HR professionals and managers understand the new requirements so termination decisions are handled in a way that preserves the enforceability of restrictive covenants where appropriate.
Bottom Line: No Severance, No Noncompete
SB170’s message to Virginia employers is simple: no severance, no noncompete. If you terminate an employee without cause and haven’t committed to severance, your noncompete won’t be enforceable. Employers that act now—by building severance commitments into their agreements, defining cause clearly, and aligning their termination practices—will be best positioned to protect their business interests under the new law. If you need assistance reviewing your noncompete agreements or making termination decisions that ensure your legitimate business interests are protected, please contact your Whiteford employment attorney.
Mary Elizabeth “Betsy” Davis is an attorney with Whiteford, Taylor & Preston, L.L.P., in Richmond, Virginia, and can be reached at bdavis@whitefordlaw.com.