Noncompete Agreements Becoming Obsolete?

The state House of Representatives may soon send noncompete agreements down the way of the dodo bird . . . toward extinction.

 

The House Labor and Workplace Committee voted 4-2 on Tuesday in favor of House Bill (HB) 2931, which would ban noncompete provisions from employment agreements in all but a few instances. The bill is now headed for a full House vote.

 

If passed by the full legislature, HB 2931 would make void noncompetition agreements that are “unreasonable.” Under the bill, a noncompete provision is “unreasonable” – and therefore void and unenforceable – if it covers independent contractors or seasonal or temporary employees, employees who have been laid off, or employees terminated without “just cause.” Notably, the bill does not define “just cause” or suggest what definition should be applied.

 

In addition, the bill creates a “rebuttable presumption” that a noncompete is unreasonable – and therefore void and unenforceable – if the restrictive term is longer than one year or if the agreement applies to a non-executive employee. The bill does not clarify how employers could overcome this “rebuttable” presumption. If the bill passes in its current form, attorneys likely will be kept busy arguing both sides, and courts will be left to clarify under what circumstances noncompetes of longer than a year or involving non-executives may be reasonable.

 

The bill would not impact the enforceability of confidentiality agreements or nonsolicitation agreements, regardless of whether the provision prohibited solicitation of employees, customers, or both.

 

Language in the bill clarifies that, if passed, it will apply to noncompetes entered into on or after the law’s effective date. In other words, noncompetes that predate the bill should still be enforceable, if they pass Washington’s current test for reasonableness.

 

What should you do?

 

If the bill passes the House, it will still have to pass the Senate and be signed into law by Governor Inslee.

 

If the bill becomes law, employers should proceed with extreme caution before binding non-executive employees to noncompetes, or requiring noncompetes of longer than one year – even for executives. Employers will need to have a strong justification for such noncompetes in order to overcome the presumption that they are invalid. Be sure to consult with employment counsel as this law develops.

 

If you have questions about noncompete agreements or other employment issues, please contact Kirsten Daniels at 206.254.4454 or by email at .

 

It’s an “Economic Reality”: Your Independent Contractors May Actually Be Employees

  • The U.S. DOL clarifies how businesses should determine whether workers are independent contractors or employees
  • Classifying as independent contractor or employee is based on “economic realities” of relationship, not “control” of the worker by the employer
  • “Economic Realities” test looks at six broad factors

The federal Department of Labor (“DOL”), the agency charged with enforcing the Fair Labor Standards Act (“FLSA”), recently published an Administrative Interpretation clarifying the test businesses must apply to determine whether workers are properly classified as independent contractors or if they are, in fact, employees. The Interpretation makes clear that “control” of the worker by the employer is not the name of the game. Rather, proper worker classification is determined by the “economic realities” of the relationship.

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Restaurant Owners Take Note: Capital Gains Tax Legislation Proposed for 2016

The proposed legislation to impose a new capital gains tax in Washington State (House Bill 2224) should have little or no immediate effect upon a typical restaurant operator.  This is because restaurant owners usually recognize ordinary income from their restaurant operations, not “capital gain” as defined in the Internal Revenue Code and in this bill.

 

However, the sale of a restaurant business at a substantial profit would likely produce a capital gain, which could be taxed under this proposal.  To the extent a restaurant owner or investor sells a restaurant or sells his stake in a restaurant, that sale might produce capital gain, which could be subject to this excise tax.

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U.S. Supreme Court Rules on Tacking Doctrine Applicable to Trademarks

A trademark serves to identify and distinguish one party’s goods or services from the goods and services of others.  A trademark may be a word, phrase, symbol or design, or any combination of those.  Trademark rights arise from either (1) actual use of the mark, or (2) the filing of an application to register a mark in the United States Patent and Trademark Office (USPTO) stating that the applicant has bona fide intention to use the mark in interstate commerce.

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