WA State's Bill Restricting Non-Competes Becomes Law
A noncompetition covenant is void and unenforceable against an employee: (a)(i) Unless the employer discloses the terms of the covenant in writing to the prospective employee no later than the time of the acceptance of the offer of employment and, if the agreement becomes enforceable only at a later date due to changes in the employee's compensation, the employer specifically discloses that the agreement may be enforceable against the employee in the future; or (ii) If the covenant is entered into after the commencement of employment, unless the employer provides independent consideration for the covenant; (b) Unless the employee's earnings from the party seeking enforcement, when annualized, exceed one hundred thousand dollars per year.
Effective January 1, 2020, Washington State's non-compete agreements are undergoing a major overhaul. Some are outlawed, others restricted, and there are an awful lot of interesting details in the new law.
In short, it's a veritable minefield for unwary employers.
Highlights of House Bill 1450
Some of the more pertinent provisions of this bill, from the perspective of employers, include the following:
Sec. 3. A noncompetition covenant is void and unenforceable against an employee:
(a) (i) Unless the employer discloses the terms of the covenant in writing to the prospective employee no later than the time of the acceptance of the offer of employment and ... (ii) If the covenant is entered into after the commencement of employment, unless the employer provides independent consideration for the covenant;
(b) Unless the employee's earnings from the party seeking enforcement, when annualized, exceed one hundred thousand dollars per year.
(c) If the employee is terminated as the result of a layoff, unless enforcement of the noncompetition covenant includes compensation equivalent to the employee's base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.
(2) A court or arbitrator must presume that any noncompetition covenant with a duration exceeding eighteen months after termination of employment is unreasonable and unenforceable. A party seeking enforcement may rebut the presumption by proving by clear and convincing evidence that a duration longer than eighteen months is necessary to protect the party's business or goodwill ...
Sec. 4. (1) A noncompetition covenant is void and unenforceable against an independent contractor unless the independent contractor's earnings from the party seeking enforcement exceed two hundred fifty thousand dollars per year ...
Sec. 5. The dollar amounts specified in sections 3 and 4 of this act must be adjusted annually for inflation ...
Sec. 6. 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 ...(b) This section does not alter the obligations of an employee to an employer under existing law, including the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies addressing such obligations.
Sec. 8. (1) Subject to subsection (2) of this section, an employer may not restrict, restrain, or prohibit an employee earning less than twice the applicable state minimum hourly wage from having an additional job ...
Sec. 9. (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.
Some Issues With This New Law That Are Clearly Problematic - and Therefore Ripe for Litigation
In the first instance, the provision barring forum selection clauses that choose states other than Washington seems, at least at first blush, to run afoul of some Supreme Court precedent.
Second, the provision in Section 6, which on the one hand allows lower-wage employees to work a second job in the same field for a competitor, while trying to balance that with the employee's ongoing fiduciary obligations to each employer seems completely unworkable on its face.
Third, the provision in Section 9 is also terribly problematic in that it is relatively easy to imagine a scenario where an arbitrator or court would like to forge a compromise whereby the employee's restrictive covenant is narrowed in geographic scope or duration, and thereby allow, or enable that employee, who may have misbehaved, to continue earning a living in his chosen field, but this provision automatically punishes the former employer - who may have done nothing wrong other than trying to protect their goodwill.
Fourth, and in a related vein, this law doesn't seem to specifically touch on the issue of non-solicitation provisions, which can easily lead to confusion, particularly insofar as it relates to the attorneys' fees provisions.
It is rather safe to say that time will tell whether these concerns are well founded.
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