Washington Supreme Court Clarifies Limits on Employers’ Anti-Moonlighting Agreements

The Supreme Court for the State of Washington issued a decision in David v. Freedom Vans LLC expanding the state’s prohibition against anti-moonlighting covenants for low-wage workers. The court held that employers may not broadly prohibit employees who earn less than twice the minimum wage from engaging in “all kinds of assistance” with a competitor. The court indicated that anti-moonlighting agreements must be reasonable, which is determined on a case-by-case basis.

Under Washington Revised Code (RCW) 49.62.070, the state’s existing moonlighting law, employers cannot restrict employees who earn less than twice the applicable state minimum wage from having an additional job, supplementing their income by working for another employer, working as an independent contractor, or being self-employed.

The law provides an exception for the following circumstances: (1) if the additional work presents a safety issue to the employee, coworkers, or public; (2) if the additional work interferes with the employer’s “reasonable and normal scheduling expectations,” and (3) if the additional work undercuts the employee’s other obligations to their employer under existing law, “including the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies addressing such obligations.” 

Case Background

Freedom Vans LLC required its employees to sign a noncompete agreement restricting them from “directly or indirectly engag[ing] in any business that competes” with Freedom Vans during their employment. Its employees filed a class action lawsuit alleging that the provision violated chapter RCW 49.62. The agreement defined “direct or indirect competition” as including, but not limited to, “engaging in a business as owner, partner, or agent” or “becoming an employee of any third party that is engaged” in a “competitive business.”  Freedom Vans filed a motion for summary judgment, arguing that its noncompete agreement was permissible under the statute.

The superior court granted summary judgment to Freedom Vans, reasoning that “RCW 49.62 does not restrict an employer’s right to require employee loyalty and avoidance of conflicts of interest during the course of employment.” On appeal, the Court of Appeals of the State of Washington affirmed the superior court, holding that RCW 49.62.070(2)(b) allows an employer to restrict its employees’ outside employment as long as the restrictions are consistent with existing law, such as the duty of loyalty. Washington’s Supreme Court granted review.

The Court’s Opinion

The Washington Supreme Court reversed the court of appeals and held that “barring employees from providing any kind of assistance to competitors exceeds a narrow construction of the duty of loyalty, contrary to the legislature’s intent to protect low wage workers.” 

The court further held that restrictions on moonlighting must be “reasonable.” Reasonableness is decided on a case-by-case basis. The court identified the following factors for courts to consider when assessing reasonableness:

• Whether there is a need to protect the employer’s business or goodwill
• Whether the restraint on the employee is reasonably necessary
• Whether the noncompete agreement violates public policy

The court remanded the case to the superior court to determine whether Freedom Vans’ noncompete agreement is reasonable.

Takeaways for Employers

The Washington Supreme Court’s decision in Freedom Vans clarifies Washington’s noncompete law and the limits on employers’ ability to restrict moonlighting. Employers should carefully review their restrictive covenant agreements and moonlighting policies to ensure they do not contain overbroad restrictions.