Washington tightens noncompete, nonsolicit, no-service law

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On March 13, Washington passed legislation that will make it harder to enforce noncompetes, nonsolicitation agreements, and no-service agreements.

The new law takes effect on June 6, 2024.

Background

You may recall that in 2019, Washington passed a law completely overhauling its then-existing noncompete law. The new law mandated advance notice that a noncompete would be a requirement, required “independent consideration” for a noncompete entered post-commencement of employment, established minimum earnings thresholds for the use of a noncompete, prohibited enforcement of a noncompete if the employee was laid off (unless the employer pays the employee’s base salary less any compensation the employee earns elsewhere), established a presumption (rebuttable by clear and convincing evidence) that noncompetes with a duration longer than 18 months are unreasonable and unenforceable, and required application of Washington law and jurisdiction if the employee is “Washington-based.”

The 2024 Law

The new law starts with the statement (presumably inspired by California’s new law) that the “provisions in this chapter facilitating workforce mobility and protecting employees and independent contractors need to be liberally construed and exceptions narrowly construed.”

True to that theme, the new law expands the types of agreements it applies to in two ways:

  • First, a “noncompetition covenant” within the meaning of the state now “also includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.”
  • Second, nonsolicitation agreements are excluded from the restrictions on noncompetes only to the extent that they apply to current customers (not prospective customers or former customers). The nonsolicit exception was not previously (expressly, anyway) restricted in this way.

The new law also limits the scope of the colloquially called “sale of business exception,” stating that the exception applies “only if the person signing the covenant purchases, sells, acquires, or disposes of an interest representing one percent or more of the business.”

In addition, the new law beefs up the notice requirement by adding the phrase, “initial oral or written,” so that the terms of a noncompete must be provided to the employee in writing (that’s not new) “no later than the time of the initial oral or written acceptance of the offer of employment . . . .”

The new law also tightens the choice of law options by voiding any choice of law provision that “allows or requires the application of choice of law principles or the substantive law of any jurisdiction other than Washington state.”

The new law (also presumably inspired by California’s new law) removes the limitation on who can bring a lawsuit for a violation of the law. The new law now says: “A person aggrieved by a noncompetition covenant may bring a cause of action to pursue any and all relief . . . .”  Previously the “person aggrieved” had to be a party to the contract. Like in California, this potentially opens the door to affected third parties trying to assert a claim. (Think new or prospective employers.)

Finally, also making it easier for an “aggrieved” person to sue, the new law adds the bolded language to this part of the existing law:

“A cause of action may not be brought regarding a noncompetition covenant signed prior to January 1, 2020, if the noncompetition covenant is not being enforced or explicitly leveraged.”

That new language seems to clarify that if a company is using the threat of enforcement of a pre-2020 agreement, aggrieved persons may bring an action.

Steps to Take Now

Companies with employees in Washington should review existing forms and procedures, and ensure compliance with the new law.

Companies may also want to review and potentially update their internal policies and procedures, including in particular, policies governing the proper use of company-owned equipment and technology and personal devices (BYOD policies), trade secret and confidential business information policies, and codes of conduct, as well as appropriate trade-secret/nonsolicit-focused onboarding and off-boarding practices.

In addition, with all of the agreements, policies, and procedures in place, proper training will be even more critical than before. Training should start before a new employee walks in the door (even just providing a link to this video will help), continue throughout the employment cycle, and repeated at the end (where it starts for the new employer, who can share this video). During the course of employment, regular (live, if possible) trainings will help to ensure that policies and procedures are not merely symbolic statements, but are actually complied with. And doing so will help to prevent third-party information from entering the company and contaminating the company’s existing information and research, as well as limit the risk that the company’s information and customer relationships are unlawfully used to unfairly compete.

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Additional resources: 

We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):

We hope you find all of these resources useful. More are coming.

And please note that we are grateful for all of the input we’ve received over the years, and welcome any suggestions for improvements that you may be willing to share.

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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country and helping me make sure that all of our resources are current and accurate.