Washington State Is Making Big Changes to Employee Non-competes

Related Practices: Business and Employment

A new bill signed into law, ESHB 1450, will significantly limit the scope and applicability of non-compete covenants in employment agreements. Some provisions of the new law simply codify existing case law, but it creates entirely new rules as well.
The new law imposes a universal 18-month limitation on employee non-competes. Any non-competition period lasting longer than 18 months will not be enforced unless the former employer proves that the longer duration is necessary to protect the employer’s business or goodwill. Employers should be wary of trying to use that provision, however. The burden of proof—clear and convincing evidence—is quite high.

In addition to the 18-month time limit, the new law limits which employees can be subject to a covenant not to compete. Under the new law, non-compete terms are void if:

• The employee subject to the non-compete earns a W-2 salary less than $100,000 per year (adjusted annually for inflation);
• The terms of the non-compete provision are not disclosed to the employee before the employee accepts the offer of employment;
• The employee signed the non-compete after starting employment unless the employee gets some additional benefit, compensation, or value more than continued employment;
• The employee was terminated as the result of a layoff, even if the non-compete was otherwise valid;
• The covenant requires adjudication outside of Washington state or otherwise deprives the employee of the protection provided under Washington’s new law.

Even independent contractors get some protection under the new law. A court may not enforce a non-compete applicable to an independent contractor earning less than $250,000 per year (adjusted for inflation), and independent contractors must receive the benefit of adjudication in Washington as well.

The new law contains a number of pitfalls for unwary employers and violations of the new rules carry hefty consequences. For example, if an employer neglects to include the precise terms of the non-compete in the prospective employee’s offer letter, the non-compete provision of the employment agreement would be void even if the offer letter mentions that a non-compete clause would be included. And if a court or arbitrator finds that the non-compete violated the law, the court may invalidate or rewrite the provisions of the non-compete, in which case the court must impose a minimum $5,000 penalty plus attorneys’ fees and costs.

While the law will require many companies to review and revise their restrictive agreements, it is not the end of restrictive covenants in Washington. The law does not apply to non-solicitation covenants (except between franchisors and franchisees), so employers can still restrict former employees from directly soliciting company clients or company employees to move their business or quit their jobs.

Although the bill takes effect January 1, 2020, it contains a retroactivity clause that makes it applicable to any non-compete lawsuit, even if the cause of action arose before the effective date. Employers should redraft non-compete agreements now so that enforceable agreements will be in place when the law takes effect.

Contact a member of Stokes Lawrence’s employment group if you have questions about how the new law will affect your non-compete agreements, or for help revising your agreements.

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Does your company file an EEO-1? Do you have 100 or more employees, or are you a federal contractor who has 50 or more employees?

If so, a federal judge has set a deadline for covered employers to submit certain pay data to the Equal Employment Opportunity Commission by September 30, 2019. The May 31, 2019 deadline for data about the makeup of the workforce is still in place. Contact your payroll administrator or a member of Stokes Lawrence's employment group if you have questions about this important compliance deadline.