In a Historic Move, Washington Bans Non-Competes for Employees Making Less Than $100,000
Olympia, Wash. (May 10, 2019) - Following the White House’s “call to action” in 2016, many states sprang into action and attempted to reign in the use of non-compete agreements in their states to even the playing field between employers and employees. Last year alone, Idaho, Utah, Massachusetts, Nevada, Oregon, New Mexico, and Illinois all amended their non-compete statutes to provide more protections for employees based in their states.
Enveloped in this wind of change, on May 8, 2019, Washington State signed into law its own non-compete statute that establishes a black-and-white compensation test for workers who can be required to sign a non-compete agreement and those who cannot. Additionally, the statute allows employees to recover their attorneys’ fees and costs against companies whose non-compete agreements are found to be unenforceable or are only partially enforced in court.
Companies that have employees in Washington State need to know the following about the statute:
- Effective Date: The statute applies to all proceedings commenced on or after January 1, 2020, regardless of when the cause of action arose. This means it could apply retroactively to non-compete agreements executed prior to January 1, 2020 that companies decide to enforce after January 1, 2020.
- Compensation Threshold: It declares non-competition covenants per se “void and unenforceable” against employees earning less than $100,000 annually and against independent contractors earning less than $250,000 annually from the party seeking to enforce the agreement. These amounts include base salary, bonus, and any other “compensation” an employee receives from the employer and will be adjusted for inflation over time.
- Non-Solicitation Agreement Excluded: The statute does not apply to non-solicitation restraints or non-competes tied to the sale of a business.
- Non-Competition Agreements are Broadly Defined: It defines non-competition restraints as “every written or oral agreement restraining an employee or independent contractor from engaging in a lawful profession, trade, or business.”
- Venue for Disputes is in Washington: It requires that any disputes related to non-compete covenants involving “Washington-based” employees to be decided in Washington.
- 18-Month Presumption: Restrictive periods greater than 18 months are presumed unenforceable.
- Remedies: If an employer violates the statute, a plaintiff can recover the greater of their actual damages or a statutory penalty of $5,000, plus attorneys’ fees, expenses, and costs (even if the non-compete is ultimately “blue penciled” or modified by the court).
- No-Poach Agreements and Moonlighting: The statute prohibits anti-raiding provisions in vertical franchise agreements as well as restrictions on outside employment for those making less than twice the state minimum wage ($27/hour in 2020) unless there are legitimate concerns regarding safety, scheduling, and/or conflicts of interest.
Additionally, the statute requires the following:
- Disclosure to Employees Prior to Employment: Employers must disclose the terms of non-compete covenants in writing to prospective employees no later than the time the employee accepts an offer of employment.
- Additional Consideration: Employers must provide additional consideration, such as increased wages, a promotion, or a bonus, for non-compete agreements presented after the commencement of employment.
- Garden Leave for Laid Off Employees: Employers must pay laid-off employees their base salary during the non-compete period if they wish to enforce their non-compete agreements.
This statute is a radical departure from current Washington laws and includes strong attorneys’ fees and remedies provisions for employees who prevail in a non-compete dispute. Given the retroactive application of the statute, all employers who have employees or independent contractors in Washington State must review their current independent contractor and non-compete agreements to determine whether compensation thresholds are met, whether an existing employee was provided consideration for signing the non-compete, and whether the scope, term, and choice-of-law and choice-of-venue provisions are adequate. If not, employers should consider rolling out new agreements before the end of the year to ensure they remain enforceable after January 1, 2020. In situations where providing consideration to an existing employee or meeting salary thresholds presents an issue, employers should consider having the employee sign robust non-disclosure and non-solicitation agreements instead of non-compete agreements.
In addition to changing its non-compete laws, Washington has also recently amended its data breach notification law, expanded employment discrimination protections for victims of domestic violence, published model sexual harassment policies and best practices, and is currently considering raising its salary level threshold for exempt employees. Accordingly, there is no time like the present to review your employment handbooks, offer letters, employment agreements, and restrictive covenants.
Elisaveta "Leiza" Dolghih, Partner
Diane L. Waters, Partner