The State of Washington recently passed House Bill 1155, which is a statutory amendment “encouraging competition and economic growth by prohibiting noncompetition agreements and clarifying nonsolicitation agreements” (the “Act”). The Act becomes effective June 30, 2027 and builds on the state’s existing noncompetition statute by implementing a broad ban on noncompetition covenants with workers. Washington is now the fifth state to outright prohibit employee non-competes, joining California, Minnesota, North Dakota and Oklahoma.
The Act broadly defines “noncompetition covenant” to include, among other things, customer non-service or non-acceptance of business clauses, as well as forfeiture-for-competition provisions, in addition to any covenant, agreement or contract that “prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind.” Noncompetition covenant is defined to exclude:
(i) A nonsolicitation agreement; (ii) a confidentiality agreement; (iii) a covenant prohibiting use or disclosure of trade secrets or inventions; (iv) a covenant entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, but only if the person signing the covenant purchases, sells, acquires, or disposes of an ownership interest representing one percent or more of the business; (v) a covenant entered into by a franchisee when the franchise sale complies with RCW 19.100.020(1); or (vi) an agreement to pay for educational expenses between an employer and a current or potential employee.
The Act applies retroactively “regardless of when the parties entered into the noncompetition covenant.” In other words, once it goes into effect, the Act will invalidate noncompetition covenants entered into prior to its effective date. This retroactive application may be subject to constitutional challenge under the Contracts Clause of the U.S. Constitution, among other bases
The Act also requires that employers, no later than October 1, 2027, make reasonable efforts to provide written notice that an applicable noncompetition covenant is void and unenforceable to any current employee, former employee who is still within the effective time period of the covenant, or independent contractor, if such person or contractor was required to enter into a noncompetition covenant or whose contract included a noncompetition covenant.
Employers with Washington-based employees or independent contractors should assess the value of entering into noncompetition covenants between now and June 30, 2027, and update their current agreement templates to comply with the Act prior to the effective date. Employers also should consult with counsel about their notice obligations to Washington-based employees and independent contractors subject to noncompetition covenants.
If you have any questions about this article, please contact Frederic T. Knape at fknape@vedder.com, Alex C. Weinstein at aweinstein@vedder.com or any other Vedder attorney with whom you have worked.
