On March 23, Washington State's governor Bob Ferguson passed a new law banning non-compete agreements, and significantly broadening how those prohibited "noncompete agreements" are defined.
For those readers who, like me, may be somewhat impatient, and fellow fans of "The Princess Bride," I will start by "skipping to the end."
Highlights of Washington State's New Noncompete Ban
From my review, here are some of the most important provisions to take note of:
- Noncompete agreements are now unenforceable as a matter of Washington State law;
- This noncompete ban also pertains to existing noncompete agreements, not only new agreements entered into after the law's effective date;
- If an employer is found to have violated this rule, such as by trying to entice an employee to enter into such an agreement, or attempting or threatening to enforce such a prohibited agreement, the employer 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.
- The ambit of what constitutes a prohibited noncompete agreement includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer, or any provision in an agreement that threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.
- Employers are further required to notify their employees that their existing noncompete agreements are no longer valid or enforceable.
- The effective date of the new law is June 30, 2027.
The Most Relevant Provisions of the New Noncompete Ban
For those who would like to do a deeper dive on the new law's provisions, here are the most relevant provisions from the new amended law, RCW 49.62.005 and 2024 c 36 s 1:
In addition, nonsolicitation agreements, which prohibit an employee from actively soliciting current customers or employees away from the employer, are not prohibited; however, the definition of nonsolicitation agreement must be narrowly construed.
(3)(a) "Noncompetition covenant" includes every written or oral covenant, agreement, or contract ((by which)) that prohibits or restrains an employee or independent contractor ((is prohibited or restrained)) from engaging in a lawful profession, trade, or business of any kind. (b) "A noncompetition covenant" also includes a covenant, agreement, or contract between a performer and a performance space, or a third party scheduling the performer for a performance space, that prohibits or restrains the performer from engaging in a lawful performance. (c) A "noncompetition covenant" also includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer. (d) A "noncompetition covenant" also includes any provision in an agreement that threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.
(e) A "noncompetition covenant" does not include: (((a))) (i) A nonsolicitation agreement; (((b))) (ii) a confidentiality agreement; (((c))) (iii) a covenant prohibiting use or disclosure of trade secrets or inventions; (((d))) (iv) 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 ownership interest representing one percent or more of the business; or (((e))) (v) a covenant entered into by a franchisee when the franchise sale complies with RCW 19.100.020(1).
(4) "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. An agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer is not a "nonsolicitation agreement."
Sec. 3. RCW 49.62.020 and 2024 c 36 s 3 are each amended to read as follows: (1) ((A)) Beginning on the effective date of this section, all noncompetition covenants ((is)) are void and unenforceable.
(2) It is a violation of this chapter for an employer to enforce, attempt to enforce, or threaten to enforce against an employee or worker any agreement prohibited by this chapter, to represent that the employee or worker is subject to an agreement prohibited by this chapter, or to enter into or attempt to enter into an agreement with an employee or worker that is prohibited by this chapter. (3) By October 1, 2025, an employer must provide to current employees, former employees, and independent contractors, who were required to enter into noncompetition covenants or whose contracts include noncompetition covenants, a written notice that the noncompetition covenant is void and unenforceable.
Sec. 4. RCW 49.62.080 and 2024 c 36 s 5 are each amended to read as follows: (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)) violation of this chapter may bring a cause of action to pursue any and all relief provided for in subsection((s)) (2) ((and (3))) of this section. (2) If a court or arbitrator determines that a ((noncompetition covenant violates)) person has violated 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.
First Thoughts Regarding the New Law
While the pure noncompete ban, its retroactivity and accompanying penalties are certainly significant, in my view, the far bigger issue is how the legislature re-defined and narrowed the carve-out for permissible non-solicitation agreements, because other than in the context of the sale of a business, employers can no longer impinge on an employee poaching a customer so long as the employee doesn't actively solicit the customer; the former employee is otherwise completely free to service former customers.
