If you are a Washington state employer who requires your employees to sign noncompete agreements, you should be aware that significant changes have been implemented that warrant your review and attention. On May 8, 2019, the Washington legislature enacted House Bill No. 1450 which, as of Jan. 1, 2020, sets forth new changes to its non-competition laws. To follow is a breakdown of the key changes:
- The law does not apply to customer or employee non-solicitation agreements, confidentiality agreements, covenants prohibiting the use or disclosure of trade secrets and inventions, covenants entered into by an individual purchasing or selling goodwill of a business or acquiring an ownership, or covenants entered into by a franchisee.
- Noncompetition covenants are only enforceable with employees who earn in excess of $100,000 per year and independent contractors who earn in excess of $250,000 per year. The amount is calculated per the amount reported on a W-2 or 1099 for taxes.
- The duration of the noncompetition covenant cannot exceed 18 months. Any terms longer than 18 months are presumed to be unreasonable and unenforceable.
- If an employee is terminated due to a layoff, the employee must be compensated at his or her base pay level for the duration of the noncompetition period.
- Employers must disclose the noncompetition agreement in writing to potential employees no later than the time the potential employee accepts the job offer.
- Existing employees entering into the noncompetition agreement after Jan. 1, 2020, must receive independent consideration (bonus, salary increase, promotion, relocation reimbursement etc.). At-will employment will no longer suffice.
- The law is retroactive. Noncompetition agreements entered into before 2020 must comply with the new law. If an employer has an unlawful covenant drafted prior to Jan. 1, 2020, the employer will be subject to penalties if they attempt to enforce the unlawful covenant against the employee after 1, 2020.
- Penalties and damages
- The new law creates a private right of action for a person who is a party to a noncompetition covenant that does not comply with the law.
- If a court or arbitrator (1) determines that a noncompetition provision violates the new law or (2) modifies, rewrites, or only partially enforces the noncompetition covenant, the violator or party seeking enforcement must pay the aggrieved party his actual damages or $5,000 whichever is greater, plus reasonable attorneys’ fees, expenses and costs incurred in the proceeding.
Given these new changes, it is highly recommended that Washington employers carefully review their current noncompetition agreements and assess compliance with this new law. The new law may require employers to draft new agreements or forego enforcement of any current noncompetition covenants after Jan. 1, 2020. While this new law has not yet been litigated in the courts, some potential strategies about how to make future noncompete agreements enforceable are worth further consideration, particularly if you anticipate some of your employees could meet these new noncompete criteria at a later date with an increase in salary or promotion.
To discuss this or other employment-related matters, contact Dylan A. Eaton by calling (208) 562-4900 or send an email to email@example.com.