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Non-Compete Agreements In Washington

 

Employee non-compete agreements are as prevalent as they are controversial, particularly in tech hubs like Seattle, Washington. A non-compete is an agreement where a worker, in exchange for being given a job by an employer, agrees not to work for a competitor of the employer or start a business that will compete with the employer.

 Non-compete agreements in Washington State

Tip: Non-competes are often inserted as a separate clause within an employment agreement. So, if you’ve been given an employment agreement, make sure to keep an eye out for a non-compete clause.

The idea behind the use of these agreements, at least from the employer’s perspective, is to prevent employees from learning confidential information (e.g., trade secrets) and then later using it to gain a competitive advantage after leaving the company. But for workers, the reality is that non-competes may hamper their ability to find new employment and/or start new companies.

While it’s worth noting the debate around the use of non-competes, the aim of this post isn’t to engage with that debate—rather, it’s to describe the current state of of the law concerning non-competes in Washington.

Let’s get started with the big question…

Are Non-Competes Enforceable In Washington?

A handful of states don’t allow employee non-competes. However, in Washington State, employee non-competes are typically enforceable so long as their restrictions are “reasonable” (though there are exceptions for lawyers and broadcasters, which are addressed later in this post).

Note: California, Montana, North Dakota, and Oklahoma don’t allow employee non-competes, and Illinois doesn’t allow them for low-level employees.

Washington has no state statutes or regulations concerning non-competes (except for lawyers and broadcasters). And so, as you might imagine, the question of what is “reasonable” is left for the courts to decide.

In determining what is “reasonable,” Washington courts consider the following issues:

  1. Whether the restraint is necessary for the protection of the business or goodwill of the employer.

  2. Whether the restraint imposes no greater restriction on the employee than is reasonably necessary to secure the employer’s business and goodwill.

  3. Whether the loss of the employee’s services does not injure the public to the degree that would justify non-enforcement of the covenant.

There can be a variety of different types of restrictions that a court may consider in assessing whether a non-compete is reasonable. But there are two particular types that are so common that it makes sense to address them in detail. These two types of restrictions are based on (1) time and (2) geography.

How Long Is A Reasonable Restriction?

Non-competes will remain in effect for a certain amount of time after the employment ends. It’s clear that non-competes can’t be interminable in Washington, as this restriction wouldn’t be viewed as reasonable. But beyond that, time restrictions have been dealt with on a case-by-case basis by Washington courts.

For instance, Washington courts have upheld non-compete agreements of 3 and 4 years. However, the Washington Supreme Court has indicated that a non-compete of 5 years may be per se unreasonable.

While court decisions can be helpful in predicting how long a non-compete may be effective, it’s important to remember that time is just one consideration—albeit, often an important one—for Washington courts in deciding whether the ultimate issue of whether a non-compete is “reasonable.” In other words, whether the restrictions in a non-compete are reasonable should always be analyzed using the three-part test.

How Geographically Broad Is A Reasonable Restriction?

Non-competes are typically limited to a certain geographic area. As with restrictions on time, the permissible restrictions on geographical area have been dealt with on a case-by-case basis by Washington courts, as part of the three-part test for reasonableness.

Washington courts have been willing to enforce specific geographical restrictions that cover clients the employee worked with while still working for the former employer. Courts have also been willing to enforce more generalized restrictions, including a restriction on a tire salesman from soliciting business within a 30-mile radius of his former employer. Even where a geographic restriction has been deemed unreasonable, Washington courts may still be willing to revise the scope of the restriction to make it a reasonable one. For instance, a 100-mile restriction was revised so as to be restricted to the greater Seattle area only.

Again, as with time restrictions, it must be remembered that while geographical scope can be an important consideration, the ultimate question of whether a non-compete is reasonable can only be decided after consideration of all relevant factors in a specific case.

Can Non-Competes Be Reasonable And Yet Not Be Enforced?

Assuming the restrictions are reasonable, non-competes will usually be enforced when an employee chooses to leave or is fired. But that is not the case when an employee is fired in breach of the employment contract.

For example, if the contract states that the employee can only be fired for cause (i.e., for a specific reason, like failing a drug test) but the employee is fired without cause, then that would amount to a breach of the employment contract. When that happens, Washington courts are unlikely to enforce the non-compete.

Note: While a non-compete may be unenforceable, that doesn’t give the former employee permission to disclose confidential information or trade secrets to a competitor. This information will likely remain protected by non-disclosure agreements.

This makes good sense. It would hardly be fair for the employer to fire an employee in breach of the employment agreement, but still insist on enforcing the non-compete against the employee. In that case, the employer is the bad actor and shouldn’t be rewarded by retaining the right to prevent the employee from getting another job in the same industry.

Lawyers And Broadcasters Are Treated Differently

If you’re not a lawyer or a broadcaster, or if you don’t plan on hiring lawyers or broadcasters, feel free to skip this section and jump to the next one.

In Washington, the laws concerning non-competes are slightly different for lawyers and broadcasters. To begin with, there are regulations/statutes that govern employment non-competes for lawyers and broadcasters, which provides greater clarity than the amorphous standard of reasonableness that applies to other employees.

Under Washington Rule of Professional Conduct 5.6, Washington lawyers cannot offer or make an employment agreement that restricts the right of a lawyer to practice law after the employment relationship ends, except an agreement that concerns retirement benefits. Washington lawyers also cannot offer or make an agreement in which a restriction on the lawyer’s right to practice is part of the settlement of a client controversy.

Under RCW 49.44.190, employee non-competes entered after 2005, between broadcasting industry employers and their employees are void and unenforceable where the employer terminates the employee without just cause or because of an involuntary layoff.

How Are Non-Competes Enforced?

We end with enforcement. When a former employee violates a non-compete agreement, the employer may bring a lawsuit against the former employee and can seek a range of remedies, including an injunction to prevent the former employee from continuing to violate the agreement.

The employer may also seek to recover monetary damages for the harm it’s suffered as a result of the former employee’s impermissible actions. In some instances, especially if the former employee worked at a low-level, the amount of damages are low enough that it doesn’t make financial sense for the business to pursue damages, in which case it may be satisfied with an injunction that prevents the behavior from continuing. But in cases where high-level employees decamp to a competitor, especially in a rapidly developing industry where companies are racing to capture market share, there may be millions of reasons to pursue monetary damages.

In any case, when a lawsuit is brought, the employer will have the burden of showing that the non-compete agreement is both reasonable and lawful.

Tip: Having the burden of proof simply means that the former employer has to submit evidence showing that the non-compete is reasonable and lawful.

Takeaways

The uncertainty of whether non-competes will be enforced in Washington has implications for both employers and employees.

For employers, it’s worth consulting with an attorney before inserting a non-compete into an employment agreement. Because the body of law dealing with non-competes in Washington has developed on a case-by-case basis, it’s not easy for the average business to make an informed analysis of whether the non-compete clause will be enforceable as drafted. Resist the temptation to find a generic sample clause and drop it into the employment agreement.

For employees, especially aspiring entrepreneurs, it’s important to understand how a non-compete clause could restrict your ability to start your own company, in which case you may want to consider negotiating the terms of the non-compete or rejecting the offer altogether.

Photo: Ken Teegardin | Flickr