By: Kimberly A. Kamel, Attorney, and Carolyn Powers, Summer Associate
There are significant upcoming changes in both federal and Washington state law pertaining to noncompete agreements. In light of these new regulations, we recommend employers carefully review and revise agreements and policies with legal counsel to ensure compliance and mitigate potential risks.
Non-Solicitation Agreements in Washington
Valid non-solicitation agreements are enforceable regardless of an employee’s earnings or position with the company. However, Washington’s new law, effective June 6, 2024, substantially limits the scope of what an employer may include in a non-solicitation agreement. Under new law, a non-solicitation agreement may only restrict former employees from soliciting any current customer of the employer to cease or reduce the extent to which it is doing business with the employer. A non-solicitation agreement that includes additional or broader restrictions, such as language that categorically prohibits employees from engaging in any business transactions with customers, will be interpreted as a non-compete agreement, likely rendering it void and unenforceable. Therefore, employers should work with legal counsel to create narrowly tailored non-solicitation agreements.
We anticipate challenges in enforcing non-solicitation agreements following these changes. Employers suspecting a violation of a valid non-solicitation agreement may need to demonstrate that the former employee initiated contact with a current customer, soliciting them to cease or reduce their business with the employer. Given these potential complexities, we recommend you review and revise all relevant agreements, policies, and clauses with legal counsel to ensure compliance and mitigate risks effectively.
Non-Compete Agreements in Washington
The law aims to protect the employer’s legitimate investments and business interests in retaining clientele while not unduly restricting an employee’s ability to transition to another employer or self-employment. As such, Washington permits employers to enforce noncompete agreements against some employees under limited circumstances. First, the employee must earn more than $120,559.99, a threshold that is raised annually. Second, the agreement must be reasonably limited in time and geographical scope. Additionally, the terms of a non-compete agreement must be disclosed to the prospective employee prior to acceptance of employment. Employers may continue to execute and enforce valid non-compete agreements until the FTC’s new rules becomes effective.
Federal Trade Commission (FTC) Ban on Non-Compete Agreements
In addition to state-level changes, a near-complete ban on noncompete agreements is scheduled to take effect September 4, 2024, pending ongoing litigation. The FTC has issued rules that will prohibit noncompetition agreements entirely, except for an existing agreement with a senior executive earning more than $151,164 who hold “policy-making” positions. New agreements with senior executives are prohibited, all other noncompete agreements will be rendered void, and employers must inform affected employees accordingly.
To facilitate compliance with the FTC regulations, the Commission has provided model language for employers to notify employees affected by noncompete agreements of their unenforceability. However, we recommend seeking legal counsel to tailor this notification to your specific business needs, potentially including additional language regarding the continued enforcement of non-solicitation and nondisclosure agreements.
At Paine Hamblen, our attorneys are poised to review your agreements and guide you through these legal developments. Given the imminent changes in Washington law and the potential implementation of FTC rules in September, we urge you to engage legal counsel promptly to strategize and prepare for these impending changes.
