LEGAL UPDATE: Washington Further Limits the Use of Noncompetition and Nonsolicitation Provisions
by Katie Robinson | April 24, 2024On March 13, 2024, Washington’s noncompete law was amended to further limit the use of noncompete provisions and nonsolicitation provisions against employees and contractors. The changes are a significant shift, and most employment agreements that have restrictive covenants will be in violation of the new requirements. It’s critical to review and update these documents prior to the June 6, 2024, effective date.
As a reminder, in 2019, Washington passed a law severely limiting the scope and enforceability of post-employment noncompete provisions and changing the landscape of protections available to businesses. Key elements of the 2019 law include:
- An employee’s annual taxable earnings must meet a set threshold, which for 2024, is $120,559.99, for the noncompete provision to be enforceable.
- The noncompete provision must be presented in writing to the prospective employee either at the time of job offer acceptance or during the initial acceptance, whether verbal or written. Any presentation beyond this point requires additional “consideration” or value to be given to the employee in exchange for signing the noncompete.
- The length of noncompete provisions may not exceed 18 months (with limited exceptions).
- Non-solicitation clauses were generally allowed under the law.
What is new in the 2024 amendment?
- Limiting Nonsolicitation Provisions. Many restrictions that are traditionally considered nonsolicitation provisions will now qualify as non-competes under the new 2024 law. Specifically, provisions that prohibit a former employee from directly or indirectly accepting or doing business with a customer are not enforceable whether it’s labeled as a noncompete or nonsolicitation provision. In addition, nonsolicitation provisions may only apply to current customers and not to prospective or former customers.
- Sale of Business. Nonsolicitation provisions entered into as part of the sale of a business will now be viewed as a noncompetition provision if more than 1% of the business is sold. A seller may not be prohibited from accepting business from or transacting business with customers.
- Enforcement of Violating Provisions. Employees may invalidate a violating noncompete that was signed prior to January 1, 2020 if the employer is attempting to enforce or “explicitly leverage”.
- Third Party Rights. A third party who is ‘aggrieved’ by the noncompetition provision now has standing to sue. For example, an employee’s new employer may sue to challenge or modify a noncompetition provision that a former employer seeks to enforce.
The federal government is also making changes in this area. On April 23, 2024, the Federal Trade Commission (FTC) approved a nearly complete ban on post-employment noncompete provisions. The new rules will take effect 120 days after the final rule is published in the Federal Register, likely in August or September. However, legal challenges to the law are expected. If the federal law takes effect, its terms would supersede state noncompete laws. We will continue to monitor the rules and their impact on employers.
Practice Tip:
- Review of restrictive covenant provisions in all contracts to ensure compliance with the new requirements and incorporate necessary revisions before the law’s June 6, 2024, effective date.
- While it is not required that employers proactively or formally rescind or modify existing noncompetition or nonsolicitation provisions to comply with the law consider formally rescinding noncompliant provisions entered into prior to January 1, 2020.
- Review of confidentiality provisions and incorporate additional protections where appropriate and legal.
- Provide restrictive covenant provisions prior to the time of acceptance of the job offer as required.