Washington State to Restrict Noncompetition Agreements

By Clay Creps

Nationwide there has been continued hostility toward noncompetition agreements for employees. A noncompetition agreement is an agreement entered into by an employee by which the employee (during employment and after) agrees not to compete with the employer or work for a competitor of the employer for a specified time period and in a specified geographic area. Obviously, such an agreement places restrictions on an employee's ability to find employment. There is increasing resistance to such restrictions. Some states, such as California, have completely outlawed noncompetition agreements, while other states, such as Oregon, place significant restrictions on such agreements.

Washington is the latest state to enact a law restricting noncompetition agreements. Governor Inslee signed the legislation into law on May 8, 2019 and it will become effective January 1, 2020. The law applies to both employees and independent contractors, has provisions regarding moonlighting, and provides a cause of action for employees against employers who seek to enforce agreements that violate the new law. The key provisions of the new law include:

  • Salary threshold: To be covered by a noncompetition agreement, an employee must make at least $100,000 per year, and an independent contractor must make at least $250,000 per year. These figures will be adjusted yearly to keep up with inflation.
  • Disclosure of agreement: The employer must disclose to the employee or independent contractor the fact they will be required to sign a noncompetition agreement prior to or contemporaneously with the acceptance of the offer of employment.
  • Duration: Unless an employer can show by clear and convincing evidence that there is a need for a longer noncompetition agreement, the term of the agreement can last no longer than 18 months following the end of employment.
  • Preexisting agreements: Any agreement an employer tries to enforce after the effective date of the law, no matter when it was entered into, will be subject to the new law's provisions.
  • Penalties/cause of action: If an employer attempts to enforce a noncompetition agreement and it does not meet the requirements of the new law, the employee will be entitled to recover actual damages or $5,000, whichever is greater, as well as attorney fees. If the agreement is rewritten by the court or partially enforced, the employee will still recover the penalties. The employer must achieve a complete victory to avoid damages and attorney fees.
  • Moonlighting prohibition ban: An employer cannot prohibit an employee making less than approximately $50,000 per year from moonlighting unless the moonlighting raises safety issues or interferes with the reasonable schedule expectations of the employer.
  • Garden leave: If an employee is terminated as a result of a layoff, a noncompetition covenant will be considered void unless the employer provides compensation equivalent to the employee's base salary at the time of the termination for the entire noncompetition period – minus any compensation earned through subsequent employment.

Given these severe restrictions, what can an employer do to protect their reasonable interests? Washington's law specifically excludes non-solicitation agreements from the definition of noncompetition agreement. Nor does the law impact the enforceability of confidentiality agreements. These agreements remain great tools for employers and should be required as a matter of course from employees and independent contractors. Under a non-solicitation agreement, an employee agrees for a period of time following employment to not solicit customers and/or employees of the employer. A confidentiality agreement protects the trade secrets of the employer.

What should employers be doing now?

Review any existing noncompetition agreements to determine if they comply with the new law. If they do not, consult with counsel about bringing them into compliance.

Determine whether non-solicitation agreements and confidentiality agreements are in place. If they are not, consult with counsel as these agreements will be vital for protecting employer interests.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have further questions on this topic, please email a member of our Labor & Employment Practice Group, or the attorney with whom you normally consult.

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