Washington State Expands Its Noncompete Law

2024年06月10日

While the Federal Trade Commission’s new noncompete ban is facing challenges on multiple fronts, Washington State has enacted its own new restriction on noncompetes. Effective June 6, 2024, employers must comply with the new worker-friendly amendments to Washington State’s existing noncompete law.

WASHINGTON’S EXISTING NONCOMPETE LAW

Under Washington’s existing noncompete law, employers must adhere to multiple provisions to enforce a noncompete. Specifically, in order to have a valid noncompete, employers must comply with the following:

Noncompetes are void and unenforceable for workers who earn less than the statutory threshold, which increases annually (currently $120,559.99 for employees and $301,399.98 for independent contractors).
Restricted periods exceeding 18 months are also presumptively unreasonable and unenforceable.
Employers must disclose the terms of the noncompete in writing prior to the employee’s acceptance of employment.
If an employer chooses to modify a current employee’s noncompete agreement, the new agreement must be supported with independent consideration.
For laid-off employees, noncompete agreements are unenforceable unless the employer pays the full base salary through the noncompete period.
For Washington-based employees, out-of-state forum selection clauses will not be enforced, regardless of where the employer is based.

Washington’s noncompete law creates a cause of action for both the “person aggrieved by a non-competition covenant,” and for the attorney general. Courts are required to implement a $5,000 penalty or actual damages—whichever is greater—plus reasonable attorneys’ fees and costs for violations of the statute or where a judge or arbitrator “reforms, rewrites, modifies, or only partially enforces” a noncompete covenant.

MAJOR AMENDMENTS

SB 5935 increases workers’ protections against employer-imposed noncompete agreements by making several amendments to Washington’s existing noncompete law. Employers now face even greater obstacles entering into and enforcing noncompete agreements.

Topic	January 1, 2020 – June 5, 2024	Effective June 6, 2024
Definitions	"Noncompetition covenant" includes every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind	The definition of “noncompetition covenant” now includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.
	The definition of regulated “noncompetition covenants” specifically excludes, among other agreements, covenants entered into in conjunction with the purchase or sale of a business.	The exclusion related to the sale or purchase or goodwill or a business interest now only applies if the person signing the covenant purchases or sells, acquires, or disposes of 1% or more of the business.
	Employee and customer nonsolicitation agreements are excluded from coverage of Washington’s noncompete statute.	While customer nonsolicitation agreements are still generally excluded from the definition of noncompetes, the legislature narrowed the definition of customer nonsolicits to agreements prohibiting solicitation of current customers.
Void Noncompetes	“A noncompetition covenant is void and unenforceable against an employee.”	The bill expands the language of the law to make it void against both employees and independent contractors.
	Employers are required to disclose the terms of the “noncompetition covenant” in writing to prospective employees no later than the time the employee accepts an offer of employment. If the employer fails to do so, the covenant is void and unenforceable.	The timeline for one of the exceptions to making covenants void related to acceptance of an offer of work is modified to include an initial oral or written acceptance.
	“A provision in a noncompetition covenant signed by an employee or independent contractor who is Washington-based is void and unenforceable to the extent it deprives the employee or independent contractor of the protections or benefits of this chapter.”	A covenant for an employee or independent contractor is void if the covenant allows or requires the application of choice of law or substantive law of a jurisdiction other than Washington.
Remedies	Only a party to a noncompetition covenant can bring a cause of action challenging the covenant.	A plaintiff bringing a cause of action under Washington’s noncompete statute is no longer required to be a party to the noncompete agreement.
Remedies	Limited the statute’s intended retroactive effect by prohibiting declaratory actions regarding a noncompetition covenant signed prior to January 1, 2020 “if the noncompetition covenant is not being enforced.”	A cause of action for a violation of the statute can be brought with respect to noncompetition covenants signed before January 1, 2020 if a covenant is being “explicitly leveraged.”

KEY TAKEAWAY FOR EMPLOYERS

Employers in Washington that have employees or independent contractors should review their existing noncompetition covenants to ensure compliance with SB 5935.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Damon Elder (Seattle)

Molly A. Terwilliger (Seattle)

Claire M. Lesikar (Seattle / Silicon Valley)

Ryan S. Malhan (San Francisco)

Patty Eakes