In March, the Washington Legislature passed HB 1155, a bill banning noncompetition agreements in Washington effective June 30, 2027.  Washington will join California, Minnesota, North Dakota, Oklahoma, Wyoming, and a few other states that prohibit or significantly restrict noncompetition covenants. The bill bans noncompetition agreements for all employees and narrows the scope of nonsolicitation agreements.

HB 1155 reflects the efforts of the Legislature over the last several years to further curtail the use of restrictive covenants by employers in Washington state.  HB 1155 bans almost all forms of noncompetition covenants for employees, with the only exception being agreements for the sale or transfer of at least a one percent interest in a business. The bill expands the definition of a noncompetition covenant to include the forfeiture of any right, benefit, or compensation. This expanded definition will prohibit agreements requiring employees to repay or forfeit bonuses or other compensation. The bill includes a narrow exception for written agreements to repay out-of-pocket educational expenses if: (1) the agreement expires within 18 months of the employee’s start date; (2), limits repayment to the pro rata portion of the remaining time of the 18-month period; and (3) the employee is released from the repayment obligation if the separation is based on good cause as defined in RCW 50.20.050 (pertaining to unemployment benefits).

HB 1155 continues to permit nonsolicitation agreements, but modifies the definition to include current and prospective customers only if: (1) the employee established or substantially developed a direct relationship with the customer, patient, client, or prospect through the employee’s work for the employer; and (2) 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.”

The prohibition on noncompetition covenants takes effect on June 30, 2027. Any action filed prior to June 30, 2027, will be governed by the current statute. After June 30, 2027, the following conduct will violate the statute: (1) enforcing or threatening to enforce any noncompetition covenant; (2) representing that an employee or worker is subject to a noncompetition covenant; or (3) entering into or attempting to enter into a noncompetition covenant.  An employer who violates the statute will be subject to an action to recover actual damages or a statutory penalty of $5,000, whichever is higher, plus an award of reasonable attorney’s fees and costs incurred by the employee in the action.

By October 1, 2027, employers must make reasonable efforts to provide written notice to all current and former employees and independent contractors whose noncompetition covenant is still in effect, informing them that their noncompetition covenant is void and unenforceable.

Employers should consider revising employment agreements for new hires now to ensure appropriate protections are in place once the ban takes effect. Over the next year, employers will need to review agreements for all employees who have noncompetition or nonsolicitation covenants and either negotiate appropriate amendments or prepare to issue the required notices before October 1, 2027.

If you have questions about this, or other Employment Law issues, the Employment Law & Litigation team is here to help.