Labor & Employment Law Daily Washington state lawmakers pass bill to restrict ‘noncompetition covenants’
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Monday, April 29, 2019

Washington state lawmakers pass bill to restrict ‘noncompetition covenants’

By Pamela Wolf, J.D.

The legislation, now on the governor’s desk, would restrict noncompete agreements to workers making $100,000-plus a year, and nix them for franchise employees and low-wage workers, among other things.

Earlier this month, the Washington Legislature approved a bill that if signed by Governor Jay Inslee will restrict the use of “noncompetition covenants” in the state. The legislation, H.B. 1450, would make these agreements void unless certain conditions are met.

Definition. As defined in the bill, “noncompetition covenants” would include both written and oral covenants, agreements, or contracts in which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business. Notably, nonsolicitation or confidentiality agreements, agreements related to trade secrets or inventions, and certain agreements related to the sale of a business or to franchises fall outside this definition.

Restrictions. Specifically, the measure would make noncompetition covenants void unless:

  • The employer discloses the covenant’s terms no later than the employment offer’s acceptance, and if enforceable later due to changes in compensation, only if the employer specifically discloses that the agreement may be enforceable against the employee in the future;
  • There is independent consideration for a covenant entered into after the employment starts;
  • The employee’s annualized earnings exceed $100,000, adjusted for inflation;
  • Where the employee is terminated due to a layoff, enforcement of the noncompetition covenant includes compensation equivalent to the employee’s base salary at the time of termination for the period of enforcement, less compensation earned through subsequent employment during the period of enforcement.

Presumed unreasonable. The legislation would make noncompetition covenants exceeding 18 months after employment presumptively unreasonable and unenforceable. This presumption, however, may be rebutted by clear and convincing evidence that a longer duration is necessary to protect the party’s business or goodwill.

Independent contractors. H.B. 1450 would also make a noncompetition covenant against an independent contractor void unless the contractor’s earnings from the other party exceed $250,000, adjusted for inflation.

Franchisors. The bill in addition would bar franchisors from restricting, restraining, or prohibiting a franchisee from soliciting or hiring an employee of a franchisee of the same franchisor.

Low-wage workers. H.B. 1450 also would include protections for low-wage workers by barring employers form restricting, restraining, or prohibiting employees earning less than twice the state minimum wage from having an additional job, supplementing their income by working for another employer, working as an independent contractor, or being self-employed.

There is an exception, though, for any such additional services when the specific services to be offered by the employee creates safety issues for the employee, coworkers, or the public, or interferes with the reasonable and normal scheduling expectations of the employer.

This section specifically does not alter an employee’s obligations to an employer under existing law, including the common law duty of loyalty and laws preventing conflicts of interest, and “any corresponding policies addressing such obligations.”

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