Washington State Enacts Law Restricting Non-Compete Agreements

Washington State Enacts Law Restricting Non-Compete Agreements

Washington’s Engrossed Substitute House Bill 1450, which dramatically curtails non-compete agreements, was signed into law by Governor Inslee on May 8, 2019. Although the new law does not take effect until January 1, 2020, businesses will need to act quickly to evaluate both existing and future non-compete agreements in order to avoid costly litigation and significant penalties.

Washington State Law on non-compete agreements

Overview

The legislature finds that workforce mobility is important to economic growth and development. Further, the legislature finds that agreements limiting competition or hiring may be contracts of adhesion that may be unreasonable.”

Washington’s new law places significant restrictions on the use of non-compete covenants, rendering them “void and unenforceable” against: (1) employees earning less than $100,000 per year, annualized and adjusted for inflation, from the party seeking enforcement; (2) employees who are terminated as the result of a layoff, unless the employee is compensated at base salary at the time of termination for the period of enforcement, minus compensation earned through subsequent employment during the period of enforcement; and (3) independent contractors earning less than $250,000 per year, adjusted for inflation, from the party seeking enforcement.

Below are some key provisions and takeaways from the new law (click here to read the original article in its entirety, including more detailed analyses of and FAQs related to the following):

Key definitions. “Non-compete covenants” are defined as “every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind.”

“Earnings” are defined as “the compensation reflected on box one of the employee’s United States internal revenue service form W-2 that is paid to an employee over the prior year, or portion thereof for which the employee was employed, annualized and calculated as of the earlier of the date enforcement of the noncompetition covenant is sought or the date of separation from employment.”

Duration. The law creates a rebuttable presumption that a non-compete covenant lasting longer than 18 months is unreasonable and unenforceable against an employee. A party seeking to rebut that presumption must prove by clear and convincing evidence that a duration longer than 18 months is necessary to protect the party’s business or goodwill—a significant burden to overcome.

The duration of a non-compete covenant between a performer and a performance space or a third party scheduling the performer for a performance space is expressly limited to three calendar days

Disclosure. The new law requires employers to disclose the terms of a non-compete covenant in writing to prospective employees no later than the time of the acceptance of the offer of employment. If the non-compete covenant becomes enforceable only at a future date because of changes in the employee’s compensation, the employer must specifically disclose that the agreement may be enforceable against the employee in the future. Non-compete covenants that are entered into after the commencement of employment must be supported by independent consideration.

Click here to read the full article by Ally Law member firm Summit Law Group. In addition to the above, the article reviews issues concerning choice of law, moonlighting and franchisors, enforcement, retroactive application of the law and its relationship to existing law, and provides answers to frequently asked questions.

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