We previously posted an article about the new non-compete legislation in Washington that was expected to be signed into law. Since that original article was posted, the bill was in fact signed and Washington employers should begin preparing for the new rules to take effect on January 1, 2020.
But what do employers really need to know and what should employers do to prepare? Continue reading the FAQ’s below to find out.
1. Question: What does the new law say on non-competes?
Answer: For a full summary of the law, check out our original article at this link. In short, a non-compete clause or agreement is only enforceable where the employee is earning more than $100,000 per year, or in the case of an independent contractor, $250,000 per year (increasing each year for inflation). Non-competition agreements with employees and contractors who make less than these monetary thresholds are void and unenforceable come January 1, 2020. Valid non-competes cannot exceed 18 months after termination of employment unless the employer can prove by clear and convincing evidence that a duration longer than 18 months is necessary to protect the business (a very difficult burden to meet).
2. Question: When does the non-compete law go into effect?
Answer: The new law takes effect on January 1, 2020.
3. Question: What happens to non-competes signed before Jan 1, 2020?
Answer: Non-compete agreements that were signed prior to January 1, 2020 must comply with the new law. No claim can be brought if the employer has not attempted to enforce the non-competition covenant.
4. Question: Are all of my employee non-competes void after Jan 1, 2020?
Answer: Not necessarily. A non-compete covenant or agreement is enforceable if it meets the requirements set forth in the law. This means that it must be with an employee who makes more than $100,000 per year (or an independent contractor who makes more than $250,000 per year). Additionally, in order for a non-compete clause or agreement to be enforceable:
- the duration must not exceed 18 months, unless you can prove by clear and convincing evidence that a longer term is necessary to protect the business;
- it must be disclosed to the employee in writing prior to or at the same time the employee accepts an offer of employment (i.e. you can’t surprise the employee with a non-compete clause or agreement on their first day of work); and
- if an employee is laid off, an employer must pay compensation equivalent to the employee’s base salary for the duration of the agreement, less compensation earned through subsequent employment during the enforcement period.
5. Question: Can I still have non-competes with independent contractors?
Answer: As mentioned above, non-competes are void and unenforceable for independent contractors making less than $250,000 per year. While you may not be able to include a non-competition clause in these independent contractor agreements, the law does not prohibit non-solicitation or non-disclosure agreements. It is important, however, that employers do not attempt to classify a worker as an independent contractor if they are actually an employee, as this could result in the assessment of penalties and back taxes. For more information on independent contractor vs. employee classification, you can see our prior posts here and here.
6. Question: Are there any other restrictions that I should be aware of?
Answer: Yes. The law also prohibits any provisions which restrict an employee from being able to work in another job, or from “moonlighting,” if that employee makes less than twice the state minimum wage (currently, that amounts to about $50,000 per year).
7. Question: Is there anything I can do to protect my business?
Answer: Yes. The restriction only applies to non-compete covenants and does not apply to other types of restrictive covenants, such as non-solicitation or confidentiality agreements. A non-solicitation can prohibit an employee or contractor from soliciting a company’s customers and other employees, and a confidentiality (or non-disclosure) agreement can protect a company’s trade secrets and other proprietary or confidential information, including customer lists, pricing models, and marketing plans.
8. Question: What happens if my company is not compliant?
Answer: There is a penalty of at least $5000 (or the actual damages suffered by the complainant, whichever is greater) plus attorneys’ fees and costs incurred in the proceeding if an employer is found to have violated the law or if a court or arbitrator has to re-write, modify, or only partially enforce the non-compete covenant.
9. Question: What should I do to prepare for the new law to take effect?
Answer: Employers should take the following actions to ensure compliance with the law:
- Perform an audit and review the contents of form agreements and existing agreements with employees and contractors to ensure they are necessary and enforceable
- Review hiring and firing practices in light of the new enforcement requirements
- Train HR and management team members on the new requirements
Contact Equinox to speak with one of our attorneys who can assist with any and all of these action items and can advise on the best ways to protect your business in light of these new restrictions.