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.