Client Alert: Washington State Legislature Passes Law Tightening Restrictions on Noncompete Agreements

victor-xok-615429-unsplash.jpgThe Washington State Legislature has passed a new Bill that restricts noncompete agreements. The Engrossed Substitute House Bill 1450 (“ESHB 1450” or the “Noncompete Bill”), ratified by Governor Inslee on May 8, 2019, places new parameters on noncompete agreements. The law will go into effect on January 1, 2020.

However, the requirements will apply retroactively to noncompete agreements entered into before that date. This means that existing noncompete agreements that do not meet these new requirements may be deemed void if challenged in court.

Under ESHB 1450, a noncompetition covenant will be void and unenforceable unless it meets all of the following conditions:

  • An employee earns more than $100,000 a year or a contractor earns more than $250,000 per year from the business seeking the noncompete. These amounts will increase to keep up with inflation.
  • The employer discloses the terms of the noncompete when making an offer or earlier.
  • The noncompete period is no longer than 18 months.

In addition, noncompete agreements will be void and unenforceable against employees who are laid off unless the employer pays the employee their base salary for the restrictive period.

The law clarifies that these requirements do not apply to nonsolicitation and confidentiality provisions, trade secret and invention assignment clauses, or noncompete agreements entered into as part of a sale of a business.

Failure to draft compliant noncompete agreements can subject businesses to significant exposure. The law creates a cause of action for individuals “aggrieved by a noncompetition covenant.” The Attorney General may also bring a cause of action on behalf of an individual or a class of individuals. Plaintiffs can seek recovery of their actual damages or the minimum fine of $5,000, whichever is greater, and their attorneys’ fees and costs.