Washington Enacts Sweeping Ban on Non-Compete Agreements

The State of Washington has enacted legislation that will ban most noncompetition agreements within the state effective June 30, 2027.  The ban includes forfeiture-for-competition agreements.  The statute is intended to apply retroactively.  The statute, however, contains limited exceptions including for narrow non-solicitation agreements and certain noncompetition agreements entered into in connection with the sale of a business.

The Scope of the Ban

Washington law currently limits an employer’s ability to enter into or enforce noncompetition agreements with lower wage workers.  Washington’s amended statute, however, bars an employer from entering into or enforcing a noncompetition agreement with any employee or independent contractor, effective June 30, 2027.  It will also become unlawful to attempt or threaten to enforce a noncompetition covenant, or to represent to a worker that he or she is subject to a noncompetition covenant.  When the statute becomes effective, Washington will join California, Oklahoma, North Dakota, and Minnesota in banning most noncompetition agreements.  The statute is intended to apply retroactive and will apply to any noncompetition agreement, regardless of when it was signed.

Washington’s statute will apply to any covenant that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind.  Notably, prohibited noncompetition covenants include provisions of an agreement that require a worker to return, repay, or forfeit any right, benefit, or compensation as a consequence of engaging in competition (i.e., “forfeiture-for-competition” covenants).

Notice Requirement

The statute requires employers to make “reasonable efforts” to provide written notice to workers whose noncompetition periods are still in effect that the noncompetition agreement is void and unenforceable.  Employers must provide notice by October 1, 2027.

Exceptions

The statute explicitly states the following common agreements are still permissible, including:

1. Employee non-solicitation agreements.
2. Customer, patient, or client non-solicitation agreements, but only to the extent they (A) last no more than 18 months after termination of employment and (B) apply to current or prospective customers with whom the restricted employee “established or substantially developed a direct relationship with” during employment. Agreements that prohibit or restrict a worker from accepting business from a customer are treated as noncompetition covenants and are therefore prohibited.
3. Confidentiality agreements.
4. Agreements prohibiting the use or disclosure of trade secrets or inventions.
5. Covenants entered into by the buyer or seller of the goodwill of a business, or otherwise disposing of an ownership interest, but only if the person signing the covenant purchases, sells, acquires, or disposes of an ownership interest representing at least 1% of the business.
6. Covenants entered into by a franchisee upon a franchise sale that complies with Washington law.
7. A written agreement to repay out-of-pocket educational expenses if it (A) expires within 18 months of the employee’s hire date, (B) prorates repayment of the remaining time in the 18-month period, and (C) releases the employee from the repayment obligation if the separation occurs with “good cause.” “Good cause” is defined by Washington law, and includes an employee’s resignation due to illness, hours reductions, pay decreases, among other reasons.

Penalties

Employers who violate the statute are subject to enforcement actions by the State of Washington or by affected individuals.  Violators must pay the aggrieved individual the greater of actual damages or a statutory penalty of $5,000, plus reasonable attorney fees, expenses, and costs associated with the legal proceeding.  It is worth noting that there have been several attempts to assert class action claims against employers under previous versions of Washington’s statute.

Action Items

Employers with Washington-based employees and businesses should review their restrictive covenant agreements to ensure compliance with the statute prior to the June 30, 2027 effective date.  Employers must also ensure they comply with the statute’s notice requirements by the October 1, 2027 deadline.

Please contact one of Honigman’s Labor and Employment Attorneys here to discuss further strategies on protecting your confidential information, customer relationships, and other business interests in light of Washington’s statute.