Effective June 30, 2027, Washington State will ban enforcement of virtually all existing noncompete agreements between companies and employees and independent contractors. In 2019, Washington restricted noncompete agreements for workers earning below an annually adjusted amount. Now the law will eliminate the low wage standard and nearly all non-compete agreements are void and unenforceable, regardless of when they were signed.
(1) Beginning [June 30, 2027], all noncompetition covenants are void and unenforceable regardless of when the parties entered into the noncompetition covenant. [RCW 49.62.020 at 4]
The new ban does not affect confidentiality and trade secret agreements.
A noncompete agreement made with the purchase or sale of a business remains enforceable, if the person signing the agreement is buying, selling, or otherwise acquiring or disposing of an ownership interest representing 1 percent or more of the business.
While the new law still permits nonsolicitation and confidentiality agreements, the law restricts the effectiveness and reach of nonsolicitation agreements by narrowing the definition of these terms. A nonsolicitation agreement may only apply to those prospective customers, patients, or clients that the employee:
(4) …established or substantially developed a direct relationship with the customer, patient, client, or prospect through the employee’s work for the employer and the prohibition expires no later than 18 months following termination of employment. An agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer, patient, or client is not a “nonsolicitation agreement.” (Emphasis added) [RCW 49.62.010 at 3]
No mention is made of how an employer will enforce the nonsolicitation agreement against a former employee who engages in a “transaction” with an employer’s customer. Directly or indirectly prohibiting a former employee from accepting business or transacting business with the employer’s customer is now an unenforceable noncompetition covenant.
(3) …nonsolicitation agreements, which prohibit an employee from actively soliciting current customers or employees away from the employer, are not prohibited; however, the definition of nonsolicitation agreement must be narrowly construed. [RCW 49.62.005 at 2]
Employers must notify employees and contractors affected by the new ban that their noncompetition agreement will be unenforceable after October 1, 2027.
(3) By October 1, 2027, an employer must make reasonable efforts to provide written notice to all current and former employees and independent contractors whose noncompetition covenant is still within its effective time period, that their noncompetition covenant is void and unenforceable. [RCW 49.62.020 at 5]
Employers should review all current employment agreements, offer letters and contractor agreements to identify noncompliant provisions under the law’s new restrictions. In addition, employers should review existing confidentiality agreements, trade secret protections and nonsolicitation agreements and amend them to adequately protect the employer’s business interests while still complying with these new restrictions.
Even though the law does not take effect until June 30, 2027, because employers are required to provide written notification to all employees and contractors subject to an active noncompete agreement by October 1, 2027, regardless of when the agreement was signed, employers should revise their policies, procedures and employment agreements now rather than later.
