3 Things You Need to Know About Washington Non-compete Laws Today

Non-compete agreements are controversial in some circles. Proponents believe they protect trade secrets, while many critics argue they stifle innovation and worker opportunities.

Regardless of your personal beliefs about non-compete agreements, you need to know how recent changes to Washington State and federal law will affect your business. A Washington non-compete law that affects both existing and new agreements went into effect on January 1, 2020. New amendments to the law will go into effect in June 2024, and an FTC rule that bans most non-compete agreements is scheduled to go into effect a few months later.

Here are the most important facts to understand:

YOUR PRIOR NON-COMPETE AGREEMENTS MIGHT NOT BE ENFORCEABLE

Ever since 2020, non-compete agreements that do not meet certain standards are void in Washington State. Both new and previously existing noncompetition agreements must comply with the new law. A new FTC rule that is scheduled to go into effect in September will restrict these agreements even further, banning nearly all noncompetition agreements affecting workers.

Before the FTC rule goes into effect, many non-compete agreements in Washington state will still be enforceable, but only under the following circumstances: 

• An employee or independent contractor earns more than a certain amount of money from the employer. This amount is adjusted for inflation each year, as described below.
• The employer discloses all the terms of the non-compete during or before making an offer, or provides additional compensation if the employee is already employed with the employer.
• The employer compensates employees that are laid off for the duration of the time period when they are still subject to non-compete agreements.
• The agreement does not cover a period longer than 18 months.

Here are the minimum income thresholds for enforceable non-compete agreements:

2024 Amendments to Washington State’s Non-compete Statute

Washington State recently amended its non-compete statute with changes that will go into effect on June 6, 2024. The amendments affect non-solicitation agreements, sale of business agreements, and agreements that prohibit individuals from conducting business transactions. They also bring new disclosure requirements to employers and clarify the jurisdictional limits of the Washington State non-compete statute.

Here are the main points covered in the amendments:

• Restrictions on Agreements Prohibiting Business Transactions: The definition of a “noncompetition covenant” now includes agreements that directly or indirectly prohibit individuals from conducting business transactions with customers. In other words, these agreements now must meet the same requirements as other non-compete agreements to be enforceable.

• Non-Solicitation Restrictions: Non-solicitation agreements are now only applicable to current customers.

• Sale of Business Exception: The “sale of business” exception now applies only if the person involved acquires or disposes of at least one percent of the business. In other words, non-compete clauses cannot be enforced in smaller sale of business transactions.

• Disclosure Requirement: Employers must provide non-compete agreements to employees or contractors before the “initial oral or written” acceptance of the offer.

• Jurisdictional Limits: Any non-compete agreement requiring application of another jurisdiction’s laws is void if the employee or contractor is Washington-based.

2024 FTC Rule on Non-Competes

However, on April 23, 2024, the Federal Trade Commission (FTC) finalized a new rule that is scheduled to go into effect on September 4, 2024. This rule bans nearly all non-compete agreements affecting workers nationwide. It is based on findings that non-competes suppress wages, hinder innovation, and limit healthy competition in the labor market. 

The FTC’s new rule will ban employers from entering into or enforcing any new non-compete agreements for workers. It will also make nearly all existing non-compete agreements unenforceable, with the exception of existing non-competes for senior executives who earn more than $151,164 annually and are in policy-making positions. Employers will be required to provide notice to affected workers that they will not enforce any non-compete agreements against them.

Enforcement of the new FTC rule could be blocked or delayed by legal challenges. Nevertheless, employers would be wise to prepare for this rule to go into effect.

Potential Impact on Washington’s Non-Compete Landscape

The FTC rule will supersede state laws’ allowances for non-compete agreements, including Washington’s, effectively eliminating non-compete clauses for most employees. This will significantly alter the legal landscape, making it critical for employers and employees to stay informed about these developments.

Employers looking to protect sensitive information will need to turn to methods other than non-compete agreements, such as trade secret laws and non-disclosure agreements (NDAs). Employers aiming to retain employees may wish to focus on offering highly competitive wages and improving working conditions in lieu of non-compete agreements.

You should seek legal advice to understand your options once the FTC rule is implemented to stay aware of your rights under current Washington law and the upcoming federal changes.

You can still sign and enforce non-solicitation agreements

Employees who make less than the minimum salary for non-competes can still sign non-solicitation agreements. While non-solicitation agreements are not as restrictive as non-competes, they can still ease some employer concerns.

A non-solicitation agreement is a document in which the employee agrees that they will not actively solicit customers or employees away from a business for a period of time after leaving. Essentially, these agreements prevent recent former employees from “stealing” clients or talent.

A non-compete agreement prevents a former employee from working for another company in the same industry. On the other hand, a non-solicitation agreement simply limits the extent to which they can compete with their former employer. The employee can still begin other work in the same industry and geographic area, which they would not be able to do with a non-compete agreement.

For example, a former employee who signed a non-solicitation agreement could not legally solicit business from their former employer’s clients for a set period of time. If they left the company that they signed an agreement with, started their own business, and then actively solicited clients from their former company, they could get an injunction from the court.

An employment law attorney can help you draft or understand a contract

If you need help creating a non-solicitation contract, non-disclosure agreement (NDA), or another type of contract to protect trade secrets, you should get in touch with an employment law attorney. An experienced professional can help you understand your legal rights. They can also draft a new agreement that meets all the legal requirements for businesses and employees in your state.

Anderson Hunter provides practical solutions to employment law issues, from navigating employee leave requests to conducting personnel investigations. We also litigate on behalf of employers.

We can help you draft an agreement that meets current laws, keeping your business protected from legal penalties. Contact us today to get help with your non-compete agreements.

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