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Covenants Not To Compete Now Limited In Washington State

Covenants Not To Compete Now Limited In Washington State

Effective January 1, 2020, a new law (ESHB 1450) voids noncompetition covenants against employees and independent contractors unless certain provisions are met. Presumes covenants exceeding 18 months are unreasonable and unenforceable.

Prevents franchisors from restricting franchisees from hiring other franchisees’ employees or the franchisor’s employees.

Prohibits employers from restricting certain employees from having other jobs or work, with limited exceptions.

Allows a court to order a violator to pay the greater of actual damages or $5,000, attorney’s fees, and costs.

Summary of Bill: Noncompetition covenants include written and oral covenants, agreements, or contracts where an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business. They do not include nonsolicitation or confidentiality agreements, agreements related to trade secrets or inventions, and certain agreements related to the sale of a business or to franchises.

Employee noncompetition covenants are void unless: (a) the employer discloses the covenant terms no later than the employment offer’s acceptance, and if enforceable later due to changes in compensation, only if specific disclosures are made; there is independent consideration for a covenant entered into after the employment starts; the employee’s annualized earnings exceed $100,000, adjusted for inflation; and for a laid off employee, subject to enforcement of a covenant, the employee is paid certain compensation during the enforcement period.

Noncompetition covenants exceeding 18 months after employment are presumed unreasonable and unenforceable. The presumption may be rebutted by clear and convincing evidence that a longer duration is necessary to protect the party’s business or goodwill.

A noncompetition covenant against an independent contractor is void unless the contractor’s earnings from the other party exceed $250,000, adjusted for inflation. Covenants related to performers generally may not exceed three calendar days.

For Washington based employees and independent contractors, covenants are void if they require adjudication outside of Washington or deprive the person of the protections under the act.

Franchisors may not restrict franchisees from soliciting or hiring other franchisees’ employees or the franchisor’s employees.

No employer may restrict an employee earning less than twice the applicable state minimum hourly wage from having other jobs or work, except when the additional work raises safety issues for the employee, coworkers, or the public, or interferes with the reasonable and normal scheduling expectations of the employer. These provisions do not alter the employee’s legal obligations to an employer, including the common law duty of loyalty and conflicts of interest laws.

Upon a violation, the attorney general may pursue any and all relief. A person aggrieved by a noncompetition covenant may bring a cause of action for relief. A court may order a violator to pay the aggrieved party the greater of actual damages or $5,000, in addition to attorneys’ fees and costs. A cause of action may not be brought regarding a covenant signed before the effective date if the covenant is not being enforced.

Earnings means: (1) for an employee, the compensation on box one of the employee’s form W-2 that is paid to an employee over the prior year, or portion thereof for which the employee was employed, annualized and calculated as of the earlier of the date enforcement of the covenant is sought or the date of separation from employment; (2) for an independent contractor, payments reported on internal revenue service form 1099-MISC.

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