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Employer Alert – Significant Restrictions on Noncompete Agreements to Take Effect January 1, 2020

ESHB 1450 was just signed into law in an effort to increase workforce mobility.  This law significantly restricts the ability of employers to impose noncompetition restrictions on employees and independent contractors.   It also restricts employer’s ability to prevent “moonlighting.”

The law takes effect January 1, 2020, but it applies to noncompete agreements in effect on that date as well as those entered into after January 1, 2020.  Under this law, a noncompete agreement is void and unenforceable unless the following conditions are met:

  • The employer must disclose the terms of the noncompete no later than the time of acceptance of the offer of employment.  If the noncompetition agreement becomes enforceable at a later date because of changes in the employee’s compensation, the employer must specifically disclose that to the employee.
  • If the noncompete agreement is entered into after an employee begins employment, it must be supported by independent consideration.
  • An employee’s annual salary must exceed $100,000.  An independent contractor’s earnings from the party seeking enforcement must exceed $250,000.  These amounts will be adjusted annually for inflation.
  • If an employee is laid off, the noncompete must provide that the employee will be compensated at their base salary rate for the enforcement period, less any compensation they earn from other employment during the enforcement period.
  • A noncompete cannot exceed 18 months in duration unless the employer proves by clear and convincing evidence that a longer term is necessary to protect the party’s business or goodwill.
  • The agreement cannot require litigation to occur outside of the State of Washington.

Notably, this new law does not affect noncompete agreements entered into as part of a sale of a business.   It also does not apply to the following:

·        Nonsolicitation agreements, i.e. agreements where an employee agrees not to solicit other employees to leave the company.

·        Confidentiality agreements.

·        Agreements that restrict disclosure of trade secrets or inventions.

Finally, the new law provides that an employer may not prohibit any employee who earns less than twice the applicable state minimum hourly wage from working an additional job to supplement their income, working as an independent contractor, or being self-employed.

The new law takes effect January 1, 2020 and will affect noncompetition agreements already in effect.

Please contact Richard Davis at Chmelik, Sitkin & Davis, P.S. if you have questions about your noncompete agreements.