Washington Law Limiting Noncompetes Takes Effect January 1

Washington’s new law significantly restricting employers’ use of noncompetition agreements takes effect January 1, 2020. In addition to limiting the use of noncompetes, the law provides for generous damages when an individual successfully claims a noncompete is unenforceable.

The new law, which limits noncompetition agreements for both employees and independent contractors, makes six significant changes.

1. The law limits the employees and independent contractors with whom an employer or business can enter into a noncompetition agreement. It bars all noncompetes with employees whose W-2 earnings are less than $100,000 a year and with independent contractors who earn less than $250,000 a year from the business that seeks to enforce the agreement.
2. Under the new law, all noncompetes lasting longer than 18 months are presumed to be unreasonable. The presumption is rebuttable by clear and convincing evidence that a longer period is necessary to protect the employer’s goodwill or business.
3. The law alters how noncompetes can be enforced against employees who have been laid off. An employer wanting to enforce a noncompete after a layoff must pay the employee’s base salary for the enforcement period minus any earnings the individual has made from subsequent employment.
4. For both employees and independent contractors, employers cannot include clauses that require disputes to be adjudicated outside of the state or otherwise deprive them of the new law’s protections.
5. The law requires employers to disclose if they will require a noncompetition agreement no later than when the employee accepts a job offer. Also, if an agreement will become enforceable only later (e.g., when the employee’s earnings increase to meet or exceed a certain threshold), the employer must inform the person that the agreement might become enforceable in the future.
6. The law allows Washington’s attorney general and individuals to sue for violations, and the individuals may recover substantial damages if a noncompetition agreement is unenforceable. If a noncompete violates the statute or is otherwise reformed or modified by a court, the employer is liable for the greater of either actual damages or a statutory penalty of $5,000 plus attorneys’ fees and costs.

For more information on Washington’s new noncompete law, see the June 2019 issue of Washington Employment Law Letter.

Stephanie Holstein is an attorney with Perkins Coie LLP in Seattle, Washington. She can be reached at SHolstein@perkinscoie.com.