Washington’s Statutory Law Governing Noncompetition Covenants
Effective since January 1, 2020, Washington’s statutory law governing noncompetition covenants (Chapter 49.62 RCW) has changed the legal landscape for employers, employees, and independent contractors in the state. This article highlights the key statutory provisions, and also briefly discusses the second component of the analysis: how courts determine whether enforcing the non-compete covenant is reasonable.
Agreements Affected. The noncompetition covenant law broadly applies to all noncompete agreements between an employer and its Washington employees and independent contractors. RCW 49.62.010. Expressly excluded, however, are confidentiality agreements and nonsolicitation agreements—agreements that are closely related to and sometimes included within agreements not to compete. Id; Tori Belle Cosmetics LLC v. Meek, No. C21-0066RSL, 2022 U.S. Dist. LEXIS 39677, *8 (W.D. Wash. Mar. 7, 2022) (nonsolicitation agreements enforceable as to both employees and independent contractors given statutory carveout and relevant definitions).
Noncompetition Covenants Are Enforceable Only Against Higher-Earning Employees and Independent Contractors. Noncompetition covenants are enforceable only against Washington employees and independent contractors whose annualized earnings exceed certain thresholds, adjusted annually for inflation. RCW 49.62.020(1)(b); -030(1). For 2022, those earnings thresholds are $107,301.04 for employees and $268,252.59 for independent contractors. See https://lni.wa.gov/workers-rights/workplace-policies/Non-Compete-Agreements.
Noncompetition Covenants for New Employees Must Be Timely Disclosed, and Those for Existing Employees Must Be Supported By New Consideration. For new hires, any noncompetition covenant must be disclosed to the prospective employee in writing at or before the time the employee accepts an offer of employment. RCW 49.62.020(1)(a). If a noncompetition covenant becomes enforceable only at a later date due to changes in the new employee’s compensation (e.g., when his or her earnings pass the threshold discussed above), the employer must disclose that the covenant may be enforceable against the employee in the future. Id. If an employer seeks to bind an existing employee to a new noncompetition covenant, the employer must provide independent consideration for that agreement, such as a raise or a promotion. Id.
Special Rule for Layoffs. A noncompetition covenant is enforceable against an employee who is laid off only if it provides for post-employment compensation at the employee’s base salary at the time of termination for the period of enforcement, minus compensation the employee earns through subsequent employment during that period. RCW 49.62.020(1)(c). There is no such statutory requirement for employees who voluntarily quit or retire, or are fired for cause.
Noncompetition Covenants Are Presumptively Limited to 18 Months. The statute proscribes that any noncompetition covenant with a duration exceeding 18 months after termination of employment is presumptively unreasonable and unenforceable. RCW 49.46.020(2). An employer may rebut the presumption by proving by clear and convincing evidence that a longer duration is necessary to protect the employer’s business or goodwill. Id; Prime Grp., Inc. v. Dixon, Case No. 2:21-cv-00016-RAJ, 2021 U.S. Dist. LEXIS 81551, *11-12 (W.D. Wash. Apr. 28, 2021) (in the absence of clear and convincing evidence supporting the 36-month restriction, plaintiff failed to rebut the presumption of unreasonableness).
Parties May Not Contract Around the Law. The statute declares as void and unenforceable any provision in a noncompetition covenant that requires a Washington-based employee or independent contractor to litigate the covenant outside the state or deprives them of the protections or benefits of the statute (e.g., non-Washington forum-selection or choice-of-law clauses). RCW 49.62.050.
Enforcement and Remedies for Noncompliance. The Washington State Attorney General or any “person aggrieved by” a noncompetition covenant that allegedly runs afoul of the statute may bring an action and, if the covenant is in violation, the “violator” (i.e., the employer) must pay either actual damages or $5,000, whichever is greater, plus reasonable attorneys’ fees, expenses, and costs. RCW 49.62.080. The remedy is the same if a court or arbitrator “reforms, rewrites, modifies, or only partially enforces any noncompetition covenant.” Id.
Retroactive Application. The noncompetition covenant law regulates both covenants entered into after the law’s 2020 effective date and those entered into before, if the proceeding concerning such pre-2020 covenant was commenced after the law’s effective date. RCW 49.62.100. So, an employer may not today seek to enforce a pre-2020 noncompetition agreement that violates the current law.
However, a person “aggrieved by” a noncompetition covenant signed before 2020 may not bring an action regarding that covenant if it is not being enforced. RCW 49.62.080(4); Sowa v. Ring & Pinion Serv., 2021 U.S. Dist. LEXIS 249678, *8-11 (W.D. Wash. Sept. 9, 2021) (employer’s alleged intent or threat to enforce pre-2020 noncompetition covenant that violated statute did not give rise to cause of action where covenant not actually being enforced).
The Reasonableness Analysis Still Applies. Even if the statutory requirements are satisfied, the court must consider whether enforcing the noncompete is reasonable. A Place for Mom v. Perkins, 475 F. Supp. 3d 1217, 1227 (W.D. Wash. July 31, 2020). To determine reasonableness, the court considers: (1) whether the restraint is necessary to protect the employer’s business or goodwill; (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill; and (3) whether it violates public policy. Emerick v. Cardiac Study Ctr., Inc., P.S., 189 Wn. App. 711, 721-22 (2015).
 A special rule applies to independent contractors that are either performers or schedulers for performers: a performance space may enforce a noncompetition covenant against them only if it does not exceed three calendar days. RCW 46.62.030(2).