On May 8, 2019, Governor Jay Inslee signed HB 1450, a bill that effects substantial changes into the enforceability of non-compete covenants in the state of Washington. As the bill recites, the legislature found that “workforce mobility is important to economic growth and development,” and the bill introduces new limitations on the use of “non-competes”.
Employers who have used non-competes in the past are cautioned in particular to consider their existing agreements – the new law applies with some retroactive effect on agreements entered before the effective date of January 1, 2020, and there are penalties which apply to attempts to enforce beyond what is permissible under the new law.
NEW LAW, NEW TERMS
Under the new Washington non-compete law that goes into effect January 1, 2020, non-compete agreements will only be enforceable if:
- When hired, the employer discloses the terms of the covenant in writing to the prospective employee no later than acceptance by the employee of an offer of employment; or
- If entered into after commencement of employment, the employer provides independent consideration; and
- The employee earns more than $100,000 a year, or for an independent contractor earns over $250,000 a year (to be adjusted annually for inflation).
- Additionally, there is a strong presumption that any non-compete that is longer than 18 months in duration post-termination of employment is unreasonable and unenforceable. Absent very narrow exceptions, employee non-compete agreements cannot exceed 18 months.
- An otherwise valid non-compete cannot be enforced against an employee terminated as a result of a layoff unless the employer continues to pay the employees base salary (less adjustment for any wages the employee earns from subsequent employment during the non-compete period).
- A non-compete during employment cannot be used to prevent an employee who earns less than twice the state minimum hourly wage from having an additional job, or working as an independent contractor or being self-employed.
AVOID HINDSIGHT IN 2020
Attempts to enforce a non-compete that is void or otherwise unenforceable after January 1, 2020 will, if adjudicated:
- Result in an award of a penalty in the greater of $5,000 or the employee’s actual damages, together with an award of reasonable attorneys’ fees, expenses, and costs incurred in the proceeding.
- The new law requires Washington law be used in applying these provisions to Washington employees and independent contractors, so employers who have employees in several states will likely need to identify choice of law separately for Washington employees, and will need to also tailor their independent contractor agreements for Washington based services.
- Similarly, an employer cannot require an employee or independent contractor to adjudicate the non-compete outside of Washington.
The full text of the bill is available here. There are other specific provisions affecting independent contractors, including performers, and franchisors / franchisees.
The new law specifically indicates that it does not displace current law on nonsolicitation agreements or trade secret laws, and that except as explicitly provided, it does not revoke, modify, or impede the development of the common law.
Washington law has long disfavored non-compete agreements, and has provided that agreements will be enforceable only to the extent that they are reasonable is scope, duration, purpose and effect – that will likely to be a threshold that employers have to satisfy to enforce an agreement even if it satisfies the conditions of the statute.
NEXT STEPS FOR EMPLOYERS
Employers are advised to review the non-compete agreements in Washington. For offer letters provided to candidates after January 1st, 2020 (and most employers will likely choose to change sooner), employers should not include a post-employment non-compete provision unless it specifically provides that it will not be enforceable unless the employee earns greater than $100,000 (indexed for inflation) at the time of termination.
Please contact Immix Law Group with any questions regarding this new law and its effect on your business.