As of June 2024, the legal parameters of Washington noncompetition agreements were refined by the passing of Substitute Senate Bill 5935. The bill, which passed by the Legislature in February and was signed into law by Governor Jay Inslee in March, took effect on June 6, 2024. Amending five provisions of RCW 49.62, the new law expands and clarifies definitions and permissions of Washington employers and individuals who utilize noncompetition agreements (“noncompetes”) in their operations. The resultant effects on the allowable terms of a noncompetition agreement may prompt evaluation of noncompetition covenants and processes of its disclosure.

Expanded definitions of “noncompetition covenant” and “nonsolicitation agreement”

The bill reflects the legislature’s findings that noncompetition agreements in Washington, which facilitate workforce mobility, are intended to protect employees’ and independent contractors’ abilities to share and mobilize their skills in an open market. This change is reflected in the bill’s expansion of the definition of “noncompetition covenant.” Previously, a noncompetition covenant’s definition was a written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. Now, this definition is expanded to include agreements between an employer and employee that directly or indirectly prohibit an employee’s acceptance or transaction of business with a customer. Under this addition, an employer cannot attempt to avoid the statute by only identifying specific customers within the scope of a noncompetition covenant as opposed to an industry or trade. Any agreement that prohibits or restrains a former employee from engaging in a lawful profession or trade, even if only with one customer, is a noncompetition covenant and subject to the statutory restrictions.

Notably, the amended law now limits the definition of non-solicitation agreements to be enforceable only to current customers of the employer, whereas the former statute presumably allowed an employer to prohibit a former employees solicitation of past, current, and prospective customers. The amendment did not add a definition of “current customer” for purposes of the scope of the non-solicitation agreement. It is not clear how this new definition will be applied to employers with seasonal, on-demand, or other cyclical relationships with customers.

New requirement for the timing of an employer’s disclosure of its noncompete terms

Employers were previously only required to disclose the terms of their noncompete agreement, if not already disclosed, no later than when an employee accepted their offer of employment. Now, employers must disclose the terms of their noncompete agreement no later than the time of the employee’s initial oral or written acceptance. This amendment creates increased scrutiny of the time at which an employer discloses its noncompetition covenant terms and to prospective employees. In particular, employers should be cautious about making oral offers of employment if they intend to have a noncompetition covenant.

Changes to an employee’s rights to bring an action to invalidate a noncompetition covenant

Under the new law, an employee may bring a legal cause of action to invalidate a noncompete that was entered into prior to January 1, 2020, if the noncompete is being “enforced or explicitly leveraged” against him. Previously, the employer had to “enforce” the covenant. The chapter does not define what it means for a noncompete to be “explicitly leveraged,” however, Washington employers and employees should be advised to use caution if a departing employee has an older noncompetition covenant that is not enforceable under the current statute. Implying that the agreement is still enforceable to restrict the employee may create a cause of action even if no express efforts to enforce the agreement are made by the employer.

Takeaways

Washington employers and employees alike should know that the amendments to RCW 49.62 by the enactment of SSB 5935 are retroactive, meaning its requirements are applicable to noncompetition agreements that were entered into before June 6, 2024. Washington employers and employees should review their noncompetition agreements to ensure they comply with the new law in Washington.

For detailed information and evaluation of noncompetition covenants, employers and employees are encouraged to direct their questions to Emily Husa or any member of Lasher’s team.