Washington State Significantly Restricts Non-Competition Agreements

The last few posts have discussed non-competition agreements in Maryland and the standards by which courts in Maryland enforce them.  A new law, found here, that was recently passed in Washington shows just how seriously some states view such restraints on employee mobility.

Noting that “workforce mobility is important to economic growth and development, … and that agreements limiting competition or hiring may be contracts of adhesion that may be unreasonable,” Washington took matters into its own hands and passed a sweeping new law essentially codifying non-competition restrictions affecting Washington employees. It is important to note, however, that Washington’s new law applies only to non-competition agreements, and not non-solicitation agreements or restrictions dealing with confidentiality or trade secrets.

The new law goes into effect on January 1, 2020.  After that, in order for any employer to enforce a non-compete against a Washington employee, the non-competition agreement must meet several new requirements.  Existing non-competes will no longer be valid, and employers that seek to enforce pre-existing agreements will be subject to the law’s penalties.

Disclosure of the Non-Competition Restriction

•           An employer must disclose the terms of the covenant in writing no later than the time of acceptance of the offer of employment.  If the covenant only becomes enforceable at a later date, that, too, must be disclosed.

•           If the covenant is entered into after employment commenced, independent consideration must be provided.

Layoffs and Garden Leave

•           If the employee is laid off, the non-competition covenant must provide that the employer pay the employee compensation equivalent to the employee’s base salary at the time of separation (sometimes referred to as “garden leave”) minus any subsequent compensation earned throughout the non-competition duration.

Duration

•           A presumption that any covenant with a duration over eighteen months is unreasonable.

Compensation Levels

•           An employee must earn at least $100,000 annually for a non-competition covenant to be valid.

•           Independent contractors must earn at least $250,000 annually.

Venue

•           A Washington-based employee or independent contractor can only be sued in Washington.

Penalties

•           Employers who violate the law or seek to enforce a non-conforming restriction can be liable for the greater of (a) actual damages or (b) a statutory penalty of $5,000, plus attorneys’ fees and costs.