On June 6, 2024, Washington’s non-compete statute will receive substantial amendments affecting employers with workers in the state. Employers should review their employment agreements and personnel onboarding practices to ensure compliance with the amendments, which further narrow the permissible uses of non-competes and non-solicits beyond existing limitations that were introduced when Washington first implemented its non-compete statute in 2020. Beginning June 6, 2024, employers should not enter into new agreements, or attempt to enforce existing agreements, that would not comply with the amended statute.

Existing Statutory Restrictions on Non-Competition Covenants

As discussed in our prior alert Washington’s existing statute applies to non-competition covenants, which are defined to include all agreements “by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind.” Under the statute, employers are prohibited from entering into or enforcing such covenants with their workers unless certain criteria are satisfied, including, among other things, the following:

• The worker’s annualized earnings must exceed a specified earnings threshold, which in 2024 is $120,559.99 for employees and $301,399.98 for independent contractors.
• The employer discloses the terms of the non-compete in writing to a prospective employee no later than the time the prospective employee accepts an offer of employment (or, if entered into after employment begins, the non-compete must be supported by additional consideration).

Non-competes that are subject to the statute are also presumed to be unenforceable if they restrict an employee for greater than 18 months after employment ends. Any non-competition covenant that does not meet the requirements of the statute, or that is otherwise determined by a court or arbitrator to be unreasonable, can result in stiff liability, including an award of attorneys’ fees and a $5,000 penalty or actual damages.

As detailed more below, the new amendments significantly expand the scope of agreements covered by these limitations and introduce further changes designed to protect workers.

Expanded Restrictions Now Cover Certain Customer Non-Solicitation and Non-Acceptance-of-Business Provisions

The statute does not currently regulate non-solicitation covenants that prohibit the solicitation of customers to cease or reduce the extent to which they do business with the employer. With the amendments, this carveout, however, will be narrowed to cover such solicitation of current customers only. Therefore, beginning June 6, 2024, any post-termination non-solicitation covenant restricting a worker from soliciting the business of former or prospective customers (as opposed to then-existing customers) could be deemed unenforceable under the amended statute unless the earnings threshold, notice/consideration provisions, and other statutory requirements are satisfied.

Additionally, the existing statute does not directly address post-termination restrictions on an employee’s ability to accept business from customers in situations where the employee does not specifically solicit such business. The amendments now address this—beginning June 6, 2024, the definition of what constitutes a non-competition covenant under the statute will be expanded to include any agreement that “directly or indirectly prohibits the acceptance or transaction of business with a customer.”

Narrowed Exemption for Sale-of-Business Non-Competes

Under existing law, the statute does not regulate sale-of-business non-competition covenants entered into by persons purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest in a business. Following the effectiveness of the amendments, however, the sale-of-business exemption will be significantly limited and apply only where “the person signing the covenant purchases, sells, acquires, or disposes of an interest representing one percent or more of the business.” If this one percent ownership criterion is not satisfied, then the earnings threshold, notice/consideration provisions, and all other requirements of the statute would need to be satisfied for the non-competition covenant to be enforceable.

Modified Notice Procedures

The amendments maintain the statutory requirement that the terms of an otherwise permissible non-competition covenant be disclosed in writing no later than employee’s acceptance of a job offer, but the existing statute did not specify whether the acceptance needed to be in writing. The amended statute clarifies that, beginning June 6, 2024, this requirement includes both written and oral acceptances.

In light of this change, employers may need to reconsider any practice of making informal offers of employment in situations where that position will require the employee to agree to restrictions covered by the statute. An employer making an oral offer to a prospective employee prior to providing a written copy of any covered non-compete agreement could run the risk of violating the amended statute where the prospective worker immediately accepts the offer (including orally) and before the employer has disclosed the terms of any restrictive covenants.

Additional Changes Under the Amendments

The amendments also expand the scope of who has standing to sue for a violation of the statute. Importantly, under the amendments, a person no longer needs to be a party to a covered non-compete agreement to bring a legal challenge. In practice, this could mean that new and prospective employers may be able to sue a worker’s or job candidate’s former employer to challenge the validity of a non-compete agreement, and, if successful, could obtain the penalties and attorneys’ fees permitted by the statute where a covenant fails to meet its requirements.

Finally, in addition to the statute’s existing prohibition on venue clauses requiring adjudication of disputes over non-competition covenants outside of Washington, the amendments now invalidate choice-of-law provisions that seek to apply law of a state other than Washington.

Next Steps and Related Considerations

While the substantive rules for enforceability of non-competition covenants in Washington largely remain the same, effective on June 6, 2024, the non-compete statute will be amended in ways that could cause meaningful compliance challenges, especially for employers that are not familiar with the new statutory restrictions.

Employers should work with counsel to develop a strategy for complying with the new amendments, which may include updating agreements to be used with current and prospective workers on a go-forward basis, revisiting determinations about which workers should be subject to covered non-competition covenants, and developing protocols for communicating offers of employment to ensure that advance notice requirements are fully satisfied.

Wilson Sonsini’s employment and trade secrets litigation practice is available to assist in advising and counseling on compliance strategies and will be actively monitoring any further developments relating Washington’s non-compete statute, including any interpretations from courts and state administrative agencies regarding the amendments. Our team is also following developments around the country with respect to non-competition agreements and other restrictive covenants—including with respect to the recent FTC ruling and related legal challenges.

The firm is available to assist companies, employees, newly formed businesses, and investors with every aspect of employment and trade secret litigation. For more information, please contact Jason Storck, Joseph Horne, Marina Tsatalis, Matt Gorman, or another attorney in Wilson Sonsini’s employment and trade secrets litigation practice, or the firm's Seattle office.