Washington Legislature Adopts New and Very Restrictive Regulations on Non-competition Agreements
by Natalya Belonozhko
June 7, 2019 – Washington employers are now subject to statutory constraints on the use of non-competition agreements for employees and independent contractors. The new law will take effect on Jan. 1, 2020, but will apply to agreements entered into before the effective date.
Non-solicitation and confidentiality agreements, agreements regarding non-disclosure of trade secrets or inventions, and non-competition agreements related to a sale of a business do not fall under these new restrictions on non-competes.
Under the new law, non-competition agreements must meet several requirements to be enforceable:
- The employer must disclose the terms of the non-compete in writing to a prospective employee on or before the time of acceptance of an offer of employment.
- If an employer intends to have an employee sign a non-compete in the future because of an anticipated salary increase, the employer must disclose this to the employee no later than the time of acceptance of an offer of employment.
- If a non-compete is required by an employer at a time following the start of employment, the employer will need to provide “independent consideration.” This means the employer must provide the employee something of value that was not provided at the time of hiring in exchange for the employee’s agreement to a non-compete.
2. Salary and Compensation Thresholds
Non-competition agreements are enforceable only against employees who earn over $100,000 per year and independent contractors whose earnings from the company are over $250,000 per year.
There is a presumption that a non-competition agreement with a term that is longer than 18 months after termination of employment is unreasonable and not enforceable. An employer may overcome this presumption by providing clear and convincing evidence that a term longer than 18 months is necessary to protect the company’s business or goodwill.
4. Forum Selection
The new law does not allow employers to require in their non-competition agreements that employees or independent contractors litigate the enforceability of the non-compete in a court outside the state of Washington.
5. Enforceability of Non-Competes Following Layoff
Non-competes that obligate employees to non-competition restrictions following the end of employment due to a layoff are enforceable only if the employer pays the former employee the employee’s base salary at the time of termination for the time period that the non-compete is in effect, minus compensation earned from the employee’s subsequent employment.
6. Non-Competes in Franchise Setting
Franchisors cannot place restrictions in any way on franchisees soliciting or hiring employees of franchisees of the same franchisor or employees of the franchisor.
7. No Restrictions on Moonlighting for Certain Employees
Employers cannot prevent employees who earn less than twice the Washington minimum hourly wage, currently $12 per hour, from having a second job, supplementing their income by working for another employer, working as an independent contractor or being self-employed. This means employees who earn less than $24 per hour cannot be subject to moonlighting restrictions. This will not apply, however, if the employer can establish that the additional services by the employee will raise safety issues for the employee, coworkers or the public, or will interfere with scheduling expectations of the employer.
If a court or arbitrator determines that a non-compete violates the new law, the employer or company is required to pay the greater of (a) actual damages or (b) statutory damages of $5,000 plus reasonable attorneys’ fees, expenses and costs incurred in the proceeding.
Washington employers with non-competition agreements currently in place which violate the new law will not be able to enforce the agreements. Employers must evaluate the enforceability of the agreements in place and revise non-competition agreements used for employees and contractors.