New Washington Restrictions on Non-Compete Agreements

On May 8, 2019, Washington Governor Jay Inslee signed Substitute House Bill 1450 into law. This law sets forth new restraints regarding non-compete agreements which will come into effect on January 1, 2020. Non-compete agreements have always been disfavored by courts as a restraint on trade. The Washington legislature echoed these sentiments, stating in Section 1 of the bill: “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.”

Some highlights of the new legislation in relation to employees include:

• There must be consideration for the employee to enter into the non-compete agreement with the employer. In other words, picture the scenario where the employee is sitting at his desk and his employer walks in and says, “Sign this, it’s required,” shoving the non-compete agreement in front of him. Employee signs it. That agreement is invalid under the new law due to the lack of consideration. In contrast, a non-compete agreement needs to be signed at the initiation of the employer-employee relationship or, later on, if the employer provides additional consideration (generally, a bonus or a raise in pay) in exchange for the employee’s agreement to adhere to the non-compete agreement.
• The employee must earn over $100,000 a year for the non-compete agreement to be valid.
• If an employee is laid off, the non-compete agreement cannot be enforced unless it “includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.” This provision protects an employee who is laid off, and then prohibited from seeking other work pursuant to a non-compete agreement.
• A presumption exists that any non-compete agreement that binds an employee for over eighteen months is unreasonable and unenforceable. The employer “may rebut that presumption by proving by clear and convincing evidence that a duration longer than eighteen months is necessary to protect the party’s business or goodwill.”

In relation to independent contractors, the non-compete agreement will be void and unenforceable unless the independent contractor’s earnings from the party retaining the contractor exceed $250,000 per year.

Also of interest – the Washington Attorney General also has a right to pursue relief against the employer or party retaining the independent contractor for violations of the new law.

If you have any questions about this new law in relation to your business, we will be happy to help.