Washington Non-Competes—Changes Coming

Effective January 2, 2020, certain employees in Washington will be immune from non-compete agreements. The new law will also make it easier for an employee to fight a non-compete in court. It’s not quite as big a change as it looks like, though, for two reasons. 

First, the new law is only about employee non-competes. It doesn’t affect non-competes by the seller of a business, or by franchisees, or non-solicitation agreements, non-disclosure agreements, or confidentiality agreements. 

Second, most of the terms just confirm what courts always did.  The new law makes non-competes void if the employer didn’t disclose them to the employee in writing before the employee accepts the employment offer.  Or if an employer wants to add a non-compete after hiring, the statute requires him to give the employee, in exchange, something more than just continued employment, such as more pay or benefits. And if you want your non-compete to last more than 18 months, be prepared to show that the additional duration is needed to protect your business.  While these terms may seem imposing, in practice, they don’t change the law.  Courts have always been skeptical about non-competes, especially oral non-competes or long non-competes. Judges already required an employer to show a need, and to show additional compensation for a non-compete added during employment.   

That said, this law makes significant changes which employers will need to watch out for:

A.  An employment non-compete agreement is now void, no ifs, ands, or buts, for any employee who earns less than $100,000 per year. For independent contractors, $250,000 per year. These amounts will be adjusted for inflation. While it was always hard to convince a court to enforce a non-compete against a low-paid employee, now, it’ll be impossible.

B.   A non-compete becomes void if the employee is laid off instead of being fired or quitting—unless the employer is willing to keep paying the laid-off employee his or her base salary while the non-compete lasts, minus anything the employee earns from another job meanwhile.  The reasoning here seems to be that if you’re eliminating the employee’s position, how much of a threat can they be? That’s not necessarily true, especially in a start-up. Many employers let discharged employees tell ESD and others that they were laid off. Starting next year, that practice will have a cost.     

C.   The law also has a shout-out to protect low-paid employees. Not only can you not have them sign a non-compete; now, if you’re paying an employee less than twice the minimum wage, you can’t fire them for moonlighting. You can fire them if they don’t show up on time, but you can’t set an unusual schedule just to trip them up. It’s unclear whether an employee with an NDA can be fired for moonlighting with a competitor. 

D.  Last and most important, violations of this statute can be punished by the attorney general, orthe employee can sue.  If the employee wins based on the statute orbecause the court decides that the non-compete is too broad even if it doesn’t outright violate the statute, damages are the greater of actual damages, or $5,000. Plus, the employer pays the employee’s attorney’s fees. That’s a big change, because it’ll now be much easier for an employee to find a lawyer to fight a badly written non-compete. Going forward, employers need to think twice, and it would be a good idea to consult an attorney, about the scope of their non-compete terms.  

 

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