The new Washington State law, Chapter 49.62 of the Revised Code of Washington (RCW) (Noncompetition Covenants), went into effect on January 1, 2020. The new law imposes restrictions on employers’ use of noncompetition covenants with their workers. Noncompetition covenants include written or oral covenants or agreements prohibiting or restraining an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind.
The following restrictions apply under the new law:
- An employee’s earnings from an employer seeking enforcement of noncompetition covenants must exceed $100,000 per year. If the worker is an independent contractor, his or her earnings must exceed $250,000 per year. The Department of Labor and Industries will adjust these amounts annually for inflation.
- A noncompetition covenant with a duration exceeding 18 months after termination is presumed unreasonable and unenforceable, unless an employer successfully proves that the duration is necessary to protect the employer’s business or goodwill.
- An employer needs to disclose the noncompetition covenants in writing to a prospective employee prior to the acceptance of the job offer.
- An employer must provide independent consideration to an existing employee entering into noncompetition covenants.
- If the employee is terminated due to a layoff, an employer must compensate the employee equivalent to the employee’s base salary minus compensation earned through subsequent employment during the noncompete period.
- A provision requiring a Washington-based employee or independent contractor to adjudicate noncompetition covenants outside of Washington is void and unenforceable.
[Excluded Covenants and Agreements]
A “noncompetition covenant” under the new law does not include the following:
- Nonsolicitation agreement
- Confidentiality agreement
- Covenant prohibiting use or disclosure of trade secrets or inventions
- Covenant for purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest
- Covenant entered into by a franchisee when the franchise sale complies with the registration requirements under RCW 19.100.020(1).
[Employee’s Additional Job – Moonlighting]
An employer may not restrict or prohibit an employee earning less than twice the state minimum wage from having an additional job or being self-employed. However, this restriction or prohibition does not apply if additional services by the employee raise safety issues or interfere with the reasonable and normal scheduling expectation of the employer.
The moonlighting provisions under the new law do not change the existing law regarding the obligations of an employee to an employer, such as the common law duty of loyalty and laws preventing conflicts of interest.
[Violation and Relief]
If an employer violates the new law, the employer must pay the worker the greater of the worker’s actual damages or a statutory penalty of $5,000, plus reasonable attorneys’ fees, expenses, and costs incurred in the proceeding.
The new law applies to all proceedings started on or after January 1, 2020, regardless of when the cause of action arose. If a noncompetition agreement was signed prior to January 1, 2020, a cause of action may be brought against an employer only if the employer attempts to enforce unlawful noncompetition covenants.
Employers are recommended to review existing noncompetition covenants and verify that they are in compliance with the new law. Further, employers are encouraged to revise any noncompetition covenant templates to meet the requirements of the new law.
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