New Limitations on Non-competition Agreements

ESHB 1450; Chap 299, Laws of 2019

  Non-competition agreements are widely used throughout a broad scope of businesses as a method for protecting an employer’s customers or clients from exploitation by former employees. Historically, questions concerning the enforceability of a particular agreement was answered on basis of a variety of factors such as the relative size of a specific geographic area in which a former employee was barred from engaging in business or the duration of time the employee was not permitted to compete with their former employer.

  The 2019 Washington legislature found workforce mobility to be an important factor for State’s continued economic growth and development and agreements that limited competition or hiring to be unreasonable. In response to its findings, the legislature has added a new chapter to the state’s laws that will become effective as of January 1, 2020. This new law places significant limitations on and conditions to the enforceability of both existing and future non-competition agreements.

  Effective January 1, 2020, non-competition agreements will be void and unenforceable against employees:

  1.     Unless the terms of the agreement are in writing and are presented to the employee before an offer of employment is accepted;

2.     Unless the employer provides the employee with compensation or some other independent consideration for entering the agreement if the agreement is entered into after employment has begun;

3.     Unless the employee’s compensation is greater than $100,000 per year; or

4.     Unless the employer pays the employee an amount equal to the employee’s base salary at the time of termination for the remaining term of the agreement if the employee has been terminated as a result of a layoff.

  The new law also establishes a presumption of unenforceability for any non-competition agreement that exceeds 18 months in duration. Any agreement that extends for a period longer than 18 months will be enforceable only when the employer can show with clear and convincing evidence that the term of the agreement is necessary to protect the employer’s business or goodwill.

  The law also provides specific conditions for agreements that involve independent contractors, performers, and franchisees and prohibits employers from restricting certain employees from supplementing their income with a second job.

  Finally, non-competition agreements between Washington residents and an out of state employer will be void and unenforceable if the agreement requires the parties to litigate disputes under the agreement in a state other than Washington.

  Companies who have non-competition agreements in place will want to have the agreements reviewed to determine if the agreements remain enforceable under the law. Companies who anticipate using non-competition agreements in the future should have their standard form agreement reviewed for compliance with the new law.