Washington State Enacts Noncompete Agreements Act
Author: Robert S. Teachout, XpertHR Legal Editor
May 14, 2019
Washington Gov. Jay Inslee has signed a new law governing the use of noncompete agreements, which includes a penalty provision while also restricting the use of no-poach agreements and moonlighting policies. The law becomes effective January 1, 2020, but will also apply retroactively to agreements signed before then so long as the claims are asserted on or after January 1, 2020.
Under the new law, "noncompetition covenants" include all forms of agreements that prohibit or restrain an employee or independent contractor from engaging in a lawful profession, trade or business. However, they do not include:
- Nonsolicitation agreements;
- Confidentiality agreements;
- Covenants prohibiting the use or disclosure of trade secrets or inventions;
- Covenants entered when purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest; or
- Franchise agreements.
As in other states, for a noncompete agreement to be enforceable under the new law, an employer must disclose the terms at the time an employment offer is accepted, or notify the employee that an agreement may be enforceable in the future due to changes in the employee's compensation. The employer also must provide additional consideration if the agreement is entered into after employment has started.
In addition, agreements may not extend beyond 18 months after employment unless the employer shows clear and convincing evidence that a longer duration is needed to protect its business.
The law's restrictions cover a variety of situations, including where noncompete agreements:
- Prohibit employees from moonlighting; or
- Prohibit franchisees from "poaching" employees from the franchisor or another of its franchisees.
Furthermore, agreements are not enforceable unless earnings paid by the employer exceed $100,000 per year for an employee or $250,000 for an independent contractor.
The law also permits the courts to modify an overly broad noncompetition agreement, in addition to awarding damages.