On May 8, 2019, Washington State Governor Jay Inslee signed new restrictions on noncompetition covenants for Washington employees. The new restrictions are effective January 1, 2020. Key elements of this new law include the following:
|Income Threshold||Only employees earning more than $100,000 (or inflation-adjusted amounts) in box 1 of the W-2 or independent contractors earning more than $250,000 (also adjusted for inflation) may have noncompetition covenants. NOTE: Employers may draft noncompetition covenants to become effective once a worker earns a sufficient amount to satisfy the income threshold.|
|Duration||Noncompetition covenants with a duration of 18 months or less are enforceable. Noncompetition covenants with a duration longer than 18 months are presumed unreasonable and unenforceable absent clear and convincing evidence of the necessity for the longer term.|
|Noncompetition Covenants||The new law broadly defines noncompetition covenants. It excludes nonsolicitation agreements, confidentiality agreements, trade secret and invention agreements, or agreements related to the sale of a business or franchise from the definition of noncompetition covenants. Nonsolicitation agreement is a defined term as it relates to nonsolicitation agreements between employers and employees.|
|Consideration and Notice||The employer must provide notice of the terms of a noncompetition covenant prior to the acceptance of the offer of employment.
To ensure that agreements are supported by adequate consideration, employers should continue to enter into noncompetition covenants at the start of employment.
Noncompetition covenants entered into after the start of employment must be supported by independent consideration.
|Layoffs||If employment ends because of a layoff, the employer may have to pay the employee’s base pay during the noncompetition period to have an enforceable agreement. The law does not define “layoff.”|
|Forum Selection and Choice of Law||Agreements for “Washington-based” employees may NOT select a forum outside Washington or choose a different state’s law that deprives “Washington-based” employees of the benefits of Washington law.|
|Pre-2020 Agreement Enforcement||If, after January 1, 2020, a company has a pre-2020 noncompetition covenant but does not attempt to enforce that covenant, the employee does not have a private right of action/counterclaim.
If, after January 1, 2020, a company attempts to enforce a pre-2020 noncompetition covenant that may violate the new law, the court may modify the agreement to make it enforceable. If the agreement is modified or if the employee brings a counterclaim, the company may be required to pay the greater of actual damages or $5,000 plus attorneys’ fees, expenses, and costs.
|Post-2020 Agreement Enforcement||For agreements entered into on or after January 1, 2020, if the noncompetition covenant is deemed to violate the new law, is rewritten or modified, or is only partially enforced, the attorney general or the employee may pursue a claim or counterclaim for the greater of actual damages or $5,000 plus attorneys’ fees, expenses and costs.|
More information about this new law can be found in our April 2019 article, “Washington State Legislature Adopts Law Restricting Noncompetition Agreements.”