In the last number of years, Washington State has aligned itself with the growing number of jurisdictions that have strongly hemmed in noncompete agreements, and, as explained more fully below, has gone so far as to impose civil penalties on those employers who seek to subject employees to overbroad restrictive covenants.
Following are some of the more pertinent provisions under Washington State's Revised Code ("RCW"), beginning with, most importantly, what actually constitutes a prohibited "noncompete" clause that could render the employer liable to the aforementioned penalties:
What Constitutes a "Noncompete Clause" - as Opposed to a "Nonsolicitation Clause" - Under Washington State Law
RCW 49.62.010 provides, in pertinent part, as follows:
(4) "Noncompetition covenant" includes every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. A "noncompetition covenant" also includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer. A "noncompetition covenant" does not include: (a) A nonsolicitation agreement; (b) a confidentiality agreement; (c) a covenant prohibiting use or disclosure of trade secrets or inventions; (d) a covenant entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, but only if the person signing the covenant purchases, sells, acquires, or disposes of an interest representing one percent or more of the business; or (e) a covenant entered into by a franchisee when the franchise sale complies with RCW 19.100.020(1).(5) "Nonsolicitation agreement" means an agreement between an employer and employee that prohibits solicitation by an employee, upon termination of employment: (a) Of any employee of the employer to leave the employer; or (b) of any current customer of the employer to cease or reduce the extent to which it is doing business with the employer.
As a General Rule, Noncompete Provisions are Unenforceable Under Washington State Law
RCW 49.62.050 provides as follows:
Unenforceable provisions.
A provision in a noncompetition covenant signed by an employee or independent contractor who is Washington-based is void and unenforceable:
(1) If the covenant requires the employee or independent contractor to adjudicate a noncompetition covenant outside of this state;
(2) To the extent it deprives the employee or independent contractor of the protections or benefits of this chapter; or
(3) If it allows or requires the application of choice of law principles or the substantive law of any jurisdiction other than Washington state.
How Employers May be Exposed if it is Found to Have Given its Employee a Prohibited Noncompete Agreement
RCW 49.62.080 provides:
Violation of this chapter—Relief—Remedies.
(1) Upon a violation of this chapter, the attorney general, on behalf of a person or persons, may pursue any and all relief. A person aggrieved by a noncompetition covenant may bring a cause of action to pursue any and all relief provided for in subsections (2) and (3) of this section.
(2) If a court or arbitrator determines that a noncompetition covenant violates this chapter, the violator must pay the aggrieved person the greater of his or her actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys' fees, expenses, and costs incurred in the proceeding.
(3) If a court or arbitrator reforms, rewrites, modifies, or only partially enforces any noncompetition covenant, the party seeking enforcement must pay the aggrieved person the greater of his or her actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys' fees, expenses, and costs incurred in the proceeding.
(4) A cause of action may not be brought regarding a noncompetition covenant signed prior to January 1, 2020, if the noncompetition covenant is not being enforced or explicitly leveraged.
The Takeaway
At first blush, Washington State has all but done away with noncompete agreements, under significant penalty. But upon further reflection, the key takeaway for employers is this: if you keep these agreements focused on nonsolicitation provisions and aim to protect legitimately proprietary and confidential information, the agreements should still withstand judicial scrutiny.
