But there are two particular types that are so common that it makes sense to address them in detail. End of Life and Reproductive Health Policies, WSHA v. DOH: Certificate of Need on Mergers and Affiliations, New State Law Restricts Use of Noncompete Agreements. 711 (Ct. App. Additionally, each aggrieved employee may pursue relief by filing an administrative complaint with the Mayor or by filing a civil action in court to recover between $250 and $2,500 for each violation, depending on the violation, or at least $3,000 for certain subsequent violations. Backlash from the D.C. business community led the D.C. Council to delay implementation of the 2020 Legislation and pass a scaled-back version in the form of the Non-Compete Clarification Amendment Act of 2022 (Amended Act). Savitt Bruce & Willey LLP. [2], The geographic scope and time period are key in determining whether the non-compete adversely affects an employees ability to earn a living. Related: Independent Contractors vs. Employees in Washington State. The new law does not prohibit non-competition provisions with the seller of a business, otherwise lawful confidentiality provisions or certain anti-moonlighting provisions. In fact, some states view non-competes as overly restrictive on competition meaning they are only enforceable in certain circumstances or not at all. And, like Californias statute, there is an exception for non-competes executed in connection with the sale of a business. Further, prior to the new non-compete law, if employers wrote an overly broad non-compete, the court was free to use the blue pencil test, meaning the court could just re-write the provision to something that was reasonable, and there would be no penalty to the employer for having a very broad geographic scope or temporal length. Pursuant to RCW 49.62.040, the Department of Labor & Industries must adjust these thresholds for inflation each year. The FTC's Proposed Rule Banning Employee Non-Competes In addition, you will find the Government Affairs teams schedule for release of upcoming resources on other laws and additional resources for implementation. Ever since 2020, non-compete agreements that do not meet certain standards are void in Washington State. These thresholds are established in RCW 49.62.020 (for employees) and RCW 49.62.030 (for independent contractors). This presumption may be rebutted, but only by clear and convincing evidence (a fairly high evidentiary burden) that a longer duration is necessary to protect the partys business or goodwill. Managing Partner: John A. Follis Firm Manager: Angela Stahl. As with restrictions on time, the permissible restrictions on geographical area have been dealt with on a case-by-case basis by Washington courts, as part of the three-part test for reasonableness. Specifically, employers cannot enter non-compete agreements with employees whose annual . Layoff insurance: If an employer wants to enforce a non-compete agreement against a laid-off employee, the business will now have to pay the worker their base salary as long as the agreement is in force, minus all compensation the employee earns from subsequent employment during the same period. ARE EMPLOYEE NONCOMPETES ASSIGNABLE? A STATE BY STATE REVIEW - Casetext by Colin F. McHugh | Mar 10, 2021 | Blogs By Colin F. McHugh, Employment Contracts, Employment Law, Free Legal Resources, Legal Knowledge. If youve already signed and are looking for how to get out of the non-compete, talk to a Washington attorney about your options. The law makes Washington the first state to set minimum compensation thresholds for noncompetition covenants with employees and independent contractors. 2023 TKN Tyson LLP. In Labriola, the employee signed a non-compete five years after he began working for the employer; he had signed a different non-compete when he started his job. RCW 49.62.020(1)(a)(i). Anti-moonlighting provisions that prohibit or restrict an employee from [a]ccepting money or a thing of value for performing work for a person other than the employer, during the employees employment with the employer, because the employer reasonably believes the employees acceptance of money or a thing of value under such circumstances will: (a) [r]esult in the employees disclosure or use of confidential employer information or proprietary employer information; (b) [c]onflict with the employers, industrys, or professions established rules regarding conflicts of interest; (c) [c]onstitute a conflict of commitment if the employee is employed by a higher education institution; or (d) [i]mpair the employers ability to comply with District or federal laws or regulations; a contract; or a grant agreement.. Avoid using noncompete agreements with employees making less than $100,000 per year or independent contractors earning less than $250,000 per year. TopicChoose a Topic*L&I/Workers CompensationEmploymentAuto Accident3rd Party InjuryDocument ReviewJob InquiryMarketingScholarship Question Non-compete agreements raise policy issues regarding the balancing of legitimate business interests with a workers right to freely seek employmenta right that some argue is increasingly important in the growing gig economy. I, 2015) (the court may evaluate the reasonableness ofgeographicand temporal proximity restrictions in combination) andId. Employers in Washington state that use non-competes should take steps now to ensure those agreements are enforceable before January - reviewing and updating agreements already in place, and ensuring that any new non-competes signed in 2019 comply with the new requirements. Two general parts of a non-compete that determine whetherthe restrictions in it are excessive under the second factor of the test were thegeographicscopeof the restraint and the time period for which an employee is restrained. For Washington-based workers, an employer is prohibited from using as choice of law clause that deprives the employee or independent contractor of the protections or benefit of the statute or being required to adjudicate the agreement outside of the state. On May 8, 2019, Governor Jay Inslee signed the "Act Relating to Restraints, Including Noncompetition Covenants, on Persons Engaging in Lawful Professions, Trades or Businesses," which was passed by both houses of the state legislature in April. What Does Washington's New Non-Compete Law Have in Store for the Tech . Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. After signing the agreement, Mr. Labriola remained an at-will employee and received no additional benefits. Related: Common Provisions In Non-Compete Agreements. Enforceability of a Noncompete Clause in a Physician's Employment Contract Instead, courts will enforce non-compete agreements to the extent reasonably possible to accomplish the contracts purpose (sometimes called blue penciling).[4]. In other words, when a court applies the rule of reasonableness to revise a covenant with the blue pencil test (or supplies a missing term), the employer still has to pay a penalty to the employee and pay her attorney fees and costs. seq., if an employer compensates an employee less than $100,000 annually, (or $250,000 for independent contractors) a non-compete is void and unenforceable as a matter of law. );Alexander & Alexander, 19 Wn. Id. Under the Amended Act, [b]eginning October 1, 2022, no employer may require or request that a covered employee sign an agreement or comply with a workplace policy that includes a non-compete provision. The term non-compete provision is defined as a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employees own business. Of note, the term workplace policy includes both written and unwritten rules and practices. The Federal Trade Commission's proposal to ban nearly all worker noncompetes follows years of legislation in statehouses, where lawmakers have a track record of walking back sweeping proposals to enact less-stringent noncompete limits that could prove a model for the agency's final rule.. Policymakers such as those in the Massachusetts legislature and the D.C. Council have considered near . See, e.g. Copyright 2023 Anderson Hunter Law. shall provide a written copy of the provisions to an employee: (1) within 30 days after the employees acceptance of employment; (2) within 30 days after October 1, 2022 (i.e., by October 31, 2022); and (3) any time such policy changes. One of the features of the law is a presumption that any non-compete exceeding 18 months after employment is unreasonable and unenforceable. A non-compete agreement prevents a former employee from working for another company in the same industry. Provisions that deprive the employee or contractor of the protections of the law are similarly void and unenforceable. Anderson Hunter provides practical solutions to employment law issues, from navigating employee leave requests to conducting personnel investigation. Non-competition agreements entered into before October 1, 2022 are not affected by the Amended Act; however, the new law applies to preexisting workplace policies and practices. Using a non-compete template is playing with fire. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. Discussed below are some general non-compete principles as well as key concepts and changes in the law under RCW 49.62 which went into effect in 2020. The idea behind the use of these agreements, at least from the employers perspective, is to prevent employees from learning confidential information (e.g., trade secrets) and then later using it to gain a competitive advantage after leaving the company. Id. App. Both new and previously existing noncompetition agreements must comply with the new law. For employees, especially aspiring entrepreneurs, its important to understand how a non-compete clause could restrict your ability to start your own company, in which case you may want to consider negotiating the terms of the non-compete or rejecting the offer altogether. Another Decision Addressing Non-Competes for In-House Counsel Beginning January 1, 2024, these thresholds will increase each year based on increases in the Department of Labors Consumer Price Index for All Urban Consumers in the Washington Metropolitan Statistical Area. They must also not be against public policy. Employers will be significantly less likely to try to enforce these overbroad covenants due to this new provision as they may now be penalized for trying to enforce such overbroad agreements. RCW 49.62, which took effect January 1, 2020 imposes a number of significant restrictions on the contents of the non-compete, and what courts can enforce against a former employee. Will banning certain non-compete agreements protect employees and foster competition? Id. It would hardly be fair for the employer to fire an employee in breach of the employment agreement, but still insist on enforcing the non-compete against the employee. Yes, but only for an employee or independent contractor whose annual income exceeds the current year's earnings thresholds of $101,390 and $253,475, respectively. The purpose of this bulletin is to provide an overview of recent changes to Washington's laws restricting employers' use of noncompete agreements. While its worth noting the debate around the use of non-competes, the aim of this post isnt to engage with that debaterather, its to describe the current state of of the law concerning non-compete agreements in Washington. Suite 1400
(Data: Maersk Mc-Kinney Moller Center for Zero Carbon Shipping, compiled by Bloomberg) Shipping is the backbone of the global economy, carrying more than 80% of . Attorney advertising. So, if youve been given an employment agreement, make sure to keep an eye out for a non-compete clause. whether it violates public policy. ), Ensure that any new non-competition agreements entered into with highly compensated employees comply with the Amended Acts drafting requirements and are supported by consideration. Web design by efelle creative. If they left the company that they signed an agreement with, started their own business, and then actively solicited clients from their former company, they could get an injunction from the court. Related: Non-Disclosure Agreements In Washington State. It allows employers to request non-compete agreements from highly compensated employees, as that term is defined in the Ban on Non-Compete Agreements Amendment Act of 2020, under certain conditions. If you think you may have a legal issue you should consult an attorney. The Amended Act sets forth four categories of provisions that are excluded from the definition of non-compete provision (and therefore not affected by the new law) provided that they are otherwise lawful: Although the Amended Act clarifies some issues that arose under the 2020 Legislation related to the scope of the ban, a couple issues remain outstanding and will be subject to further legislation or judicial interpretation. Washington, D.C.'s New Non-Compete Law Is Now in Effect Restrictions on the Use of Noncompete Agreements: RCW 49.62, which took effect January 1, 2020, imposes significant restrictions on employers use of noncompete agreements (referred to in the law as noncompetition covenants[i]). This statute now codifies that such provisions are unenforceable, and for a Washington-based employee, Washington law applies, and the proper venue to litigate such a contract dispute must be in Washington. For employers, its worth consulting with an attorney before inserting a non-compete into an employment agreement. All rights reserved. Whether the loss of the employees services does not injure the public to the degree that would justify non-enforcement of the covenant. Although it remains to be seen how courts interpret the Amended Act, prior reports by the D.C. Councils Committee on Labor and Workforce Development suggested that non-solicitation provisions are not intended to be covered by the non-compete ban.3 While the lack of any express mention of such provisions in the Amended Act suggests that they are not covered by the legislation, employers can hedge against the possibility of courts applying the statute to non-solicitation provisions by treating them in the same fashion under the Amended Act as express non-competition clauses until there is definitive authority to the contrary. With the adoption of the new statutory restrictions on non-compete agreements, these agreements will not be enforceable under the following circumstances, in pertinent part: In the event that these statutory restrictions, which can be found at RCW 49.62, do not preclude enforcement of the non-compete, then courts will still apply the common law standard of reasonableness before enforcing non-compete agreements. However, if the noncompete agreement was signed before January 1, 2020, and it is not being enforced, it cannot be sued upon under the new law. Employers should also note that they generally may not prohibit employees from having additional employment if they earn less than twice the state minimum wage. . Prepare plan to provide copies of any confidentiality or non-disclosure policies, anti-moonlighting policies, conflicts of interest policies or other applicable policies to all affected D.C. employees by October 31, 2022 and any time these policies are changed, and to new hires within 30 days after their acceptance of employment. :Emerick v. Cardiac Study Center, Inc.,P.S. Courts have also been willing to enforce more generalized restrictions, including a restriction on a tire salesman from soliciting business within a 30-mile radius of his former employer. Non-Compete Agreements. Whether the restraint imposes no greater restriction on the employee than is reasonably necessary to secure the employers business and goodwill. No loopholes: Employees are protected from out-of-state employers seeking to bypass the new non-compete rules by voiding any agreement that requires a Washington employee or contractor to settle the agreement outside Washington or not subject to the law. Washingtons non-competition agreement law governs when a non-competition agreement may be considered valid or enforceable under state law. Like many states, Washington courts have stricken that balance by enforcing non-compete agreements that are reasonable.[1] Courts determine whether an agreement is reasonable by considering: (1) whether the restraint is necessary to protect the employers business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employers business or goodwill, and (3) whether enforcing the covenant would injure the public through loss of the employees service and skill to the extent that the court should not enforce the covenant, i.e. The Amended Act also includes employer notice requirements and imposes penalties for violations. If an employee or independent contractor has earnings less than the threshold specified under law, the non-compete agreements is considered void and unenforceable under RCW 49.62. Washington state legislators and Governor Inslee think so. If an employee or independent contractor has earnings less than the threshold specified under law, the non-compete agreements is considered void and unenforceable under RCW 49.62. The employer discloses all the terms of the non-compete during or before making an offer, or provides additional compensation if the employee is already employed with the employer. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. For noncompete agreements that are entered into after employment begins, the employer must provide independent consideration. In addition to President Biden's recent Executive Order and changes to Illinois law, Washington D.C. recently passed robust new legislation.. (Employers also should be sure to evaluate whether there is sufficient consideration to support such updated agreements for incumbent employees. Set a reminder to check for the new compensation threshold for highly compensated employees that will apply as of January 1, 2024. Prior to even drafting a non-compete agreement, businesses should decide whether a non-compete is even necessary. What Makes a Non-compete Enforceable in Washington? Further, RCW 49.62.080(3) reverses the critically harmful holding of Emerick as discussed above in which the court significantly re-wrote the covenant to make it reasonable, but still held that the employer was the substantially prevailing party under a contractual prevailing party provision. When that happens, Washington courts are unlikely to enforce the non-compete. Generally, in Washington, prior to the new law, a covenant not tocompete(non-compete)was a contractual promise that an employee wouldnot engage in specific kinds of work or business practices upon termination ofhis or heremployment with a particular employer. To: Hospital Legal Counsel and Government Affairs Staff, From: Jaclyn Greenberg, JD, LLM, Policy Director, Legal Affairs If you have questions or concerns about non-compete and whether it is enforceable, please don't hesitate to reach out to the industry-leading business attorneys at Hendershot, Cowart P.C. Evaluate the companys employee population, including remote workers, to identify all covered employees and all employees who meet the criteria for highly compensated employees. This means that the new law applies to noncompete agreements that were (or are) entered into before January 1, 2020, as long as the legal action about that agreement is initiated on or after January 1, 2020. A non-compete is an agreement where a worker, in exchange for being given a job by an employer, agrees not to work for a competitor of the employer or start a business that will compete with the employer. Are Any Non-Competes Still Enforceable in Washington? Employee Non-Competes: Effective January 1, 2020, a non-compete with a Washington employee is only enforceable if the employee: Makes more than $100,000 per year (subject to yearly adjustment for inflation) Is notified of the non-compete terms no later than when the offer of employment is accepted The court considered the hardship to the employee and refrained from prohibiting him from practicing his profession in the region and materially limited the customers he could pursue within the 100-mile radius of one office in the Seattle area. Moonlighting: If an employee earns less than double the state minimum wage, an employer may not restrict, restrain, or prohibit the employee from having an additional job, supplementing the employees income by working for another employer, working as an independent contractor, or being self-employed. Under the law, a noncompete agreement is void and unenforceable unless the annual earnings from the employer are more than $100,000 for an employee or $250,000 for an independent contractor.