Client Alert: Washington State Updates and Clarifies Noncompetition Covenant Act

For Washington employers, more changes are on the horizon related to the validity and enforceability of noncompete and nonsolicitation agreements. This Client Alert is a summary of the amendments of which you should be aware in running your business.

Effective June 6, 2024, this new set of amendments to Washington’s 2020 Noncompetition Covenant Act will modify the original law by further invalidating most types of restrictive covenants in Washington. These amendments are intended to clarify the scope of the original law and respond to court rulings misconstruing the Act. These provisions will go into effect next month, and will apply retroactively as explained below. For Washington employers, these changes may impact how you draft, distribute, and enforce your noncompete and nonsolicitation agreements.

What has changed?

The Legislature has updated and clarified the Washington Noncompetition Covenant Act in a few key ways:

• Expanded Definition: The term “noncompetition covenant” will now include agreements which prohibit employees from engaging in business with or soliciting particular customers. This means that noncompetition agreements will now apply to certain nonsolicitation agreements.
• Customer Solicitation: Nonsolicitation provisions are only broadly enforceable if they apply to a company’s current Former or prospective customers cannot be included.
• Notice: The new rule clarifies that employers must provide notice of the noncompete to a prospective employee no later than the initial acceptance of an offer, even if that offer is merely a verbal
• Standing for Claims: Under the revised law, nonparties to the noncompete may also sue current or past employers who violate the statute. This means that even a new employer could file suit under the statute if a former employer is enforcing or threatening enforcement of a new hire.
• Jurisdiction and Law: The new amendments emphasize that any contract provision that requires an employee to adjudicate their noncompete outside of Washington, or using the laws of any other state, is void and unenforceable.
• Retroactive Actions: Employees can now sue their employers for invalid noncompetes that were signed before January 1, 2020, if a former employer is enforcing or “explicitly leveraging” an unlawful noncompete. The Legislature clarifies that “explicitly leveraging” can mean sending a letter threatening a former employee or reminding them of their noncompete obligations.
• Sale of Business: Washington previously exempted noncompetes entered into as part of a business sale. The new amendment limits this exception to owners selling at least 1% of the business. This prevents employers from seeking to enforce noncompetes that are part of equity grants.
• Salary Thresholds: The new changes increase the annual salary thresholds from $100,000 to $120,559.99 for employees and from $250,000 to $301,399.98 for independent contractors. Unless an employer is paying more than these threshold amounts, it cannot enforce a noncompete against that individual.

What remains the same?

As a reminder, these changes are in addition to the significant restrictions on noncompetition agreements which already exist in Washington, such as:

• Compensation for “Layoffs” During the Restrictive Period: For the noncompete to be enforceable, employers must pay the employee’s base salary during the entire restriction period if the employee is terminated as part of a layoff.
• Duration: Noncompete agreements lasting more than 18 months are presumed unreasonable and unenforceable.
• Enforcement and Penalties: Employees (or even the Attorney General) may sue employers for damages and penalties if the employer: (1) attempts to enforce an unlawful noncompete, or (2) even simply requires the employee to enter into an unlawful noncompete (if signed after January 1, 2020). Violations result in actual damages or a $5,000 statutory penalty plus attorney’s fees.

What do Washington employers need to do before June 6, 2024?

The new amendments do not expressly require any specific notice to your employees about these changes. However, as a best practice, we do recommend that any employer who has an employment agreement signed after January 1, 2020, that contains a nonsolicitation provision that now violates the expanded law, should issue a written amendment to the agreement, so as to avoid potential liability or civil penalties.

All other employers in Washington should review their noncompete and nonsolicitation agreements to ensure compliance with these new amendments as well as the existing rules regarding noncompetition agreements.

For more information, please contact Kristina Maritczak at kmaritczak@cairncross.com or Konrad Kalpen at kkalpen@cairncross.com.