Washington State Makes Worker Non-Compete Obsolete

The landscape regarding worker non-competition covenants (often referred to as non-compete agreements) has been in flux over the last few years at both the state and federal levels. Since January 2020, Washington State has limited when non-competes may be used for workers based in Washington. Now, Washington State joins several other states, including California, Minnesota, North Dakota, and Oklahoma, in banning all employee and independent contractor non-competes, with an exception for agreements relating to the sale of at least one percent interest in a business. The non-compete ban takes effect on June 30, 2027, but it will apply to all non-competes “regardless of when the parties entered into the” agreement. By October 1, 2027, companies must notify all current and former employees and independent contractors whose non-competes are still within its stated effective period that their non-competes are no longer in effect.

What qualifies as a non-compete?

Washington State defines non-competes as every agreement that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business. In 2024, Washington added that a non-compete includes any agreement directly or indirectly prohibiting the acceptance of business with a customer, which narrowed what was previously allowed in a non-solicitation clause.

The new amendment goes even further, adding as a non-compete “any provision in an agreement that threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation, as a consequence of the employee engaging in a lawful profession, trade, or business.” This addition forecloses a potential workaround that had been gaining traction of allowing workers to compete against a company on the condition that they would have to return or repay compensation (e.g., a bonus) or a benefit (e.g., continued health care benefits).

What is not banned?

Washington’s non-compete law expressly carves out several types of agreements from the definition of non-competes, including confidentiality agreements and an agreement prohibiting the use or disclosure of trade secrets. The law also creates an exception for non-competes related to the sale of an ownership interest representing one percent or more of a business. These types of agreements are not banned by the non-compete law.¹

Another type of agreement not prohibited by Washington’s non-compete law is non-solicitation agreements; though, the non-compete law has significantly narrowed the permissible scope of these types of agreements. Non-solicitation agreements generally prohibit an employee from actively soliciting customers or employees away from the employer. Since the non-compete law originally went into effect, it has expressly stated that non-solicitation agreements are not included in the definition of non-competes. Over the years, however, the non-compete law has broadened the definition of non-competes and narrowed the definition of non-solicitation agreements. For example, the law provides that “[a]n agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer, patient, or client is not a ‘non-solicitation agreement.’” The amended law now further limits customer non-solicitation agreements to situations in which “the employee established or substantially developed a direct relationship with the customer, patient, client, or prospect through the employee’s work for the employer.” Additionally, customer non-solicitation agreements must expire no later than 18 months following termination of employment.

The amended law also adds a new type of agreement to the list of agreements not prohibited by the non-compete law. The law clarifies that an agreement for repayment of out-of-pocket educational expenses upon an employee’s termination is allowed in certain circumstances. To be valid, such agreement must:

• Expire within 18 months of the employee’s start date for employment;
• Limit repayment to the pro rata portion of the remaining time of the 18-month period; and
• Release the employee from the obligation to repay if the employee’s separation from employment is based on “good cause.”

What is required of employers under the new law?

When the new law goes into effect on June 30, 2027, employers may no longer enter into or enforce, or attempt to enter into or enforce non-compete agreements against any employee or independent contractor. Additionally, employers may not represent that an employee or independent contractor is subject to a non-compete.

As noted above, the law also requires employers to make “reasonable efforts” to notify current and former employees and independent contractors by no later than October 1, 2027, that their non-competes are void and unenforceable.

Violating this law has significant consequences. If an employer violates the law, a person aggrieved by the violation is able to file a private right of action and is entitled to their actual damages or a statutory penalty of $5,000, whichever is greater, plus reasonable attorneys’ fees, expenses, and costs. Accordingly, employers must act quickly to ensure they are in compliance.

Employers should review their employment agreements for new hires to make sure they align with the law once it goes into effect on June 30, 2027. This may include offer letters, employment contracts, equity grants, handbooks, policies, and separation agreements. Additionally, employers must review existing contracts with their employees and independent contractors who have non-competes and/or non-solicitation agreements and either make necessary adjustments for when the new law takes effect or prepare to issue the required notices by no later than October 1, 2027.

Footnote

1 These types of agreements may be limited by other laws, including for example Washington State’s Silenced No More Act or the federal Speak Out Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.