Earlier this year, Governor Jay Inslee signed a new bill into law that severely limits the ability of employers to impose non competition requirements on their employees and independent contractors. Previously, parties were free to enter into non-competition agreements as long as they were reasonable in time and geographic scope.
Under the new law, non-competition covenants are unenforceable against employees unless:
- The employer discloses the covenant terms no later than the employment offer’s acceptance;
- There is independent consideration for a covenant entered into after the employment starts;
- The employee’s annualized earnings exceed $100,000, adjusted for inflation; and
- For a laid off employee, the employee must receive compensation equal to their base salary minus subsequent compensation earned during the non-compete enforcement period.
Additionally, even if the above conditions are met, a non-competition covenant is presumed void if the term exceeds 18 months. The employer may rebut this presumption by providing clear and convincing evidence that a term longer than 18 months is necessary to protect the employer’s business or goodwill.
Non-competition covenants against independent contractors are similarly unenforceable unless the independent contractor earned $250,000 per year, adjusted for inflation, from the party enforcing the non-competition covenant.
With regard to restricting an employee’s ability to supplement their income, an employer cannot restrict employees who earn less than twice the applicable state minimum hourly wage from seeking additional outside employment. However, the additional employment cannot interfere with safety or the reasonable scheduling expectations of the employer.
Either the attorney general or the individual affected by the non-competition covenant may bring suit under this act. If a violation is found, the party seeking enforcement of the non-competition covenant must pay the greater of the aggrieved party’s actual damages or $5,000 plus attorneys fees.
The new law applies to any lawsuit brought to enforce or challenge a non-competition restriction after January 1, 2020, even if the non-competition agreement was entered into prior to this date. Thus, as a practical matter, any preexisting non compete covenants will be unenforceable unless these covenants meet the requirements of the new law.
It is important to note, however, that this new law does not apply to the following:
- Non solicitation agreements;
- Confidentiality agreements;
- Covenants prohibiting the disclosure of trade secrets; and
- Covenants entered into as part of the purchase or sale of the goodwill of a business or acquiring or disposing of an ownership interest in a business
This new law represents a big change in employment law in Washington State. Both employers and employees will want to carefully review this new law with legal counsel as well as any existing contracts that contain non compete clauses to determine their enforceability.
For more information on the regulation of businesses in Washington State, please contact us at bellinghamlegal.com