The new rule imposes additional restrictions on non-compete agreements and applies to all non-compete agreements as of January 1, 2020, regardless of when the agreement was signed. The new rule applies to non-compete agreements with both employees and independent contractors.

Many of these changes are significant and Washington employers that use noncompete agreements should familiarize themselves with the new restrictions to avoid having an unenforceable agreement.

One significant provision state that the non-compete agreement is void and unenforceable if the employee is required to bring or defend a lawsuit or arbitration outside of the state of Washington.

Current agreements can be enforced through the end of 2019, but, effective January 1, 2020, agreements will have to meet the new requirements to be valid.

Compensation thresholds set for agreements
The law defines noncompetition covenants as every written or oral agreement that restrains an employee from engaging in lawful profession trade or business and sets a minimum compensation threshold for employees and contractors to enter into an enforceable agreement. An employee’s annualized earnings must exceed $100,000 per year and a contractor must earn at least $250,000 per year from the party, adjusted annually for inflation.

If the employee is terminated by layoff, the covenant is void and unenforceable, unless the employer pays compensation equivalent to the employee’s base salary, minus other earnings, for the time the employee is restricted.

Communication is key to enforcement
Under the new rules, a non‑competition covenant is void and unenforceable against an employee, unless the employer discloses the terms of the covenant in writing no later than the time of acceptance of the offer.
Additional restrictions

If an agreement is determined to violate the new law, the greater of actual damages or a statutory penalty of $5,000, plus reasonable attorney fees, expenses, and costs can be assessed. If the court or arbitrator decides to reform, rewrite, modify, or partially enforce a covenant, the party seeking enforcement will be assessed the same damages and fees.

Non‑competition agreements may not exceed 18 months, unless there is proof with clear and convincing evidence that a longer time is necessary to protect the business or its goodwill.

Other Employment Agreements still allowed
The new law does carve some restrictions out from a “non-competition covenant” and the items below are still allowed in employer agreements:

• Restriction on departing employees forbidding them from soliciting other employees to leave the employer;
  
• Restriction on departing employees forbidding them from soliciting customers to cease or reduce their business with the employer;
  
• Confidentiality agreement;
  
• Covenant prohibiting use or disclosure of trade secrets or inventions;
  
• Restrictive covenant entered into in connection with the purchase or sale of the goodwill of a business or in connection with the acquisition or disposal of an ownership interest;
  
• Covenant entered into by a franchisee, if the franchisee sale complies with RCW 19.100.020(1); and
• Enforcement of the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies.

Members should reach out to UEA’s Employment Law attorneys if they have questions about any current agreements or how to adjust language for new agreements to ensure they will be enforceable when needed.