On May 8, 2019, Washington State Governor Jay Inslee signed into law Engrossed Substitute House Bill 1450 (“ESHB 1450”), a new law governing noncompetition agreements in the State of Washington. The law takes effect on January 1, 2020 and imposes a number of new restrictions on employers’ abilities to enforce noncompetition agreements.
The new law makes a number of changes to the existing landscape of noncompetition agreements in Washington. Chief among these changes are the following:
Salary Restrictions
Noncompetition covenants are void and unenforceable against:
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Employees earning $100,000 or less annually (to be adjusted each year for inflation);
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Independent contractors earning $250,000 or less annually from the party seeking enforcement (to be adjusted each year for inflation); and
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Employees who are laid off, unless the employer pays the base salary for the restricted period.
Time Restriction
The new law creates a presumption that noncompetition agreements with a restrictive period extending beyond 18 months are per se unreasonable and unenforceable. An employer can overcome this presumption by demonstrating through “clear and convincing evidence: that the longer restrictive period is necessary to protect the employer’s business or goodwill.
Offer in Writing Prior to Employment
Moving forward, employers seeking to enforce noncompetition covenants must present the terms of the covenant in writing to a prospective employee no later than when the employee accepts the offer of employment.
“No Moonlighting” Policy
The new law restricts existing “no moonlighting” policies by prohibiting employers from restricting or restraining employees earning less than twice the applicable state minimum hourly wage from having another job or supplementing their income.
Choice of Venue Provisions
ESHB 1450 also voids contract provisions that require adjudication of disputes outside of Washington to the extent such adjudication would deprive the employee of the protections or benefits of this new law.
Entities that fail to comply with the requirements under the new law could face significant financial penalties. Such penalties include the greater of the employee’s actual damages or $5,000 in statutory damages. The penalties also include attorney’s fees, expenses, and other costs. For noncompetition agreements entered into after the law takes effect on January 1, 2010, these penalties apply in lawsuits, including those initiated by an employee, even if the employer does not actively seek enforcement of the agreement. ESHB 1450 will also apply retroactively to any and all lawsuits commenced on or after January 1, 2020, regardless of when the cause of action arose. This means that noncompetition covenants executed before January 1, 2020 are subject to the new law, potentially exposing employers to damages allowed under the new law if the employer seeks enforcement of an older agreement. Alternatively, employers can convince their employees to sign new noncompetition agreements, along with new and independent consideration.
While the law significantly overhauls the very nature of noncompetition agreements in Washington, it nevertheless leaves a few parts of the existing framework unaffected. The new law excludes from the definition of “noncompetition covenants” the following: 1) nonsolicitation agreements; 2) confidentiality agreements; 3) covenants prohibiting use or disclosure of trade secrets; 4) a covenant entered into by a person purchasing or selling a business; and 5) with some limitations, a covenant entered into by a franchisee. Similarly, an employee’s duty of loyalty to his or her employer is also preserved.
Betts Patterson & Mines regularly drafts, negotiates, and litigates noncompetition agreements. We are available at your convenience to discuss how ESHB 1450 may affect your business.
