Effective January 1, 2020, the State of Washington dramatically limited the instances in which an employer can use or enforce noncompetition agreements with employees and contractors. The law prevents the use of noncompetition agreements for low level employees who make less $100,000.00 a year in compensation and for independent contractors who receive less than $250,000.00 a year in revenue from the employer. These amounts are indexed to inflation and the law even applies to noncompetition agreements that were executed prior to 2020.
While likely the most noticeable, the monetary thresholds are not the only limitations created by the new law. The law creates the presumption that any noncompetition covenant with a duration exceeding eighteen months after termination of employment is unreasonable and unenforceable. The law also prevents enforcement of the noncompetition agreement if the employee was laid off unless the employer provides the employee equivalent compensation during the enforcement period (such as a severance package). Additionally, the statute creates a one-way attorney’s fee provision and imposition of a $5,000.00 penalty if the employer attempts to enforce a noncompetition agreement which does not comply with the new restrictions. This penalty and attorney’s fee provision applies even when the court or arbitrator “reforms, rewrites, modifies, or only partially enforces any noncompetition covenant…”
Employers should be particularly cautious about attempting to use or enforce noncompetition agreements in Washington going forward. Even if the employee meets the compensation threshold, the statute puts the onus on employer to create reasonable restrictions and creates substantial risk if the employer seeks to enforce such an agreement. Fortunately, the statute explicitly excludes nonsolicitation agreements, confidentiality agreements; and trade secrets protections from the definition of noncompetition agreements. As nonsolicitation agreements can prohibit former employees from soliciting other employees to leave or servicing former employer’s customers, employers can still protect their legitimate business interests without leaving the former employee unable to work. Additionally, the statute does not apply to noncompetition agreements where the agreement accompanies the sale of an ownership interest.
In light of these provisions, it is advisable to consult with an attorney prior to drafting a noncompetition agreement or seeking to enforce such an agreement.