The Law on Noncompete Agreements in Washington Changed. Here’s What You Need to Know.
As a small business owner, noncompete agreements are an important tool. No one can afford to train up an employee, give him access to sensitive company secrets, and risk having him leave to go work for a competitor at the drop of a hat.
In Washington state, it used to be that as long as noncompete agreements were carefully crafted to minimize the impact on an employee’s ability to make a living (i.e., it was reasonable in length, scope, and geographic restriction) it was enforceable.
Recently, with the passage of a new law in Washington, this all changes.
Here are the big changes you need to know about ESHB 1450 (let’s just call it the “new law” ok)?
Noncompete Agreements are Only for $100k+
The biggest and most important change is that starting January 1, 2020, noncompete agreements (whether signed before this date or after) are only legal if it’s for an employee making more than $100k per year as reflected in their W2 wages (with this figure to increase every year at the rate of inflation). For employees making less than that, don’t even bother. You can’t have them sign a noncompete agreement even if you pay them for their signature.
18+ Months is Probably Unenforceable
The new law says that noncompete agreements with a duration of longer than 18 months are presumptively unenforceable. This doesn’t mean that all agreements longer than 18 months are unenforceable, just that if you had one longer than this, you’d be fighting an uphill battle.
Layoff Probably Means You Can’t Enforce
Forced to layoff an employee? You’re gonna have a hard time trying to enforce a noncompete agreement even if they made over $100k and the noncompete was for 18 months or less. This is because the new law goes as far as to say that unless you pay such an employee severance in the amount of what they made before they were laid off and what they ended up making instead, for the entire period of the noncompete agreement. In other words, if you lay off an employee, be prepared to subsidize their compliance with the noncompete agreement.
Big Penalties for Bad Noncompete Agreements
It used to be that if you tried to enforce a defective noncompete agreement, the worst that would happen is that you might lose the lawsuit you file in enforcement efforts. No more with the new law!
The new law makes enforcing a noncompliant noncompete agreement a serious mistake. Not only does it require that any employer who tries to enforce a noncompliant noncompete agreement be forced to pay the employee’s actual damages or a minimum of $5k plus attorney’s fees, but it also directs the Attorney General to assist employees. This means employers who disregard this new law could end up with the biggest law firm in the state as opposing counsel.
Nonsolicitation Agreements are Still Fine
Don’t let anyone try to tell you that this new law affects non-solicitation agreements though. The fact is that this new law only applies to noncompete agreements and specifically states that it does not prohibit or affect nonsolicitation agreements in any way. That means that you can still (and often should) have key employees sign agreements that prohibit them from soliciting your employees and customers when they leave.
Secrets are Still Secrets
Even with the new law, you are still within your rights to prohibit employees from stealing your trade secrets and using them to compete against you. Trade secrets are highly protected by Washington’s Uniform Trade Secrets Act which provides some serious teeth to use against any employee who tries to steal yours. The key here is to clearly identify what are your trade secrets (can include processes, policies, formulae, customer lists, etc.) and to take reasonable steps within your business to protect them.
The Bottom Line on Noncompete Agreements in Washington
With the big changes, you will want to do a few things:
1. Review your existing noncompete agreements to ensure they are in compliance.
2. If they aren’t, either decide you won’t take any action to enforce them, or better yet, have them rewritten to be compliant.
3. For rewritten agreements or any future agreements, seriously consider whether you really need noncompete provisions or whether nonsolicitation and trade secret protection provisions are sufficient.
