House Bill 1450

March 12, 2019

The Washington state legislature is currently considering a bill that would significantly impact an employer’s ability to use and enforce non-compete agreements with employees and independent contractors in nearly every profession, trade or business of any kind in the state.  Key elements of the bill include:

  • Noncompetition agreements are unenforceable unless the employee earns more than two times the average annual wage (or four times the annual wage for an independent contractor).

Washington state’s annual average wage in 2017 was $61,900, so employees would need to earn more than $123,800 to have an enforceable non-compete; independent contractors would need to earn more than $247,600 for an enforceable non-compete;

  • A presumption that a noncompetition agreement lasting longer than 18 months is unreasonable and unenforceable;
  • Violators of the bill could face penalties of $5,000 plus actual damages and legal fees.

(The language of the Substitute House Bill 1450 can be found here:  http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/House%20Bills/1450-S.pdf#page=1)

Non-compete agreements between an employer and a worker generally prevent workers from taking jobs with employer’s competitors for a certain period of time and in a defined geographic area. Employer advocates of non-competes use these agreements to protect business interests, while opponents argue that non-competes agreements stymie innovations and unfairly impede an individual’s ability to make a living.

Although the bill does not restrict the employer’s ability to use non-disclosure agreements, confidentiality agreements and non-solicitation agreements to provide a level of protection, the non-competition aspect will no longer be allowed in many cases.

We have heard from our members who have expressed concern about the bill in three particular areas:

  1. The salary threshold proposed in the bill required for a valid non-compete (currently twice the average annual wage, or $123,800) will create a lopsided and unfair effect for employers on the eastern side of the state where employees (or independent contractors) have lower salary levels. As a result, this important business tool will not be an option for smaller businesses on this side of the state.
  2. Small businesses will be unfairly impacted, particularly where the business has a single or a few employees playing many critical roles in all aspects of the company. As a result, even a single employee may have access to a full complement of business information, from customers to sales pricing, HR, vendor and process and procedures, which could severely damage the employer’s business should that single employee flee to a competitor without an effective non-compete agreement.
  3. Even with a non-disclosure agreement, an employee who goes to a competitor will always be influenced and shaped by his or her former employer’s trade secrets and confidential processes, potentially inadvertently revealing sensitive information or practices even without making specific disclosures.

While our members work hard to provide a positive workplace to retain talent, a few have shared situations where competitors had offered high salaries to attract an employee with the aim of gaining a strategic advantage against the employer.  As such, having a reasonable non-compete is needed for many small businesses in our area.

We would encourage employers to share their thoughts with state representatives on this issue.  Contact information for the House and Senate members can be found here:

https://app.leg.wa.gov/Rosters/MembersByDistrictAndCounties/House (Representatives Ricelli, Ormsby and Shea)

http://leg.wa.gov/Senate/Senators/Pages/default.aspx (Senator Andy Billig)

 

Written By:

Angela Hayes,

Senior Legal Counsel 

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