Washington Supreme Court Limits Noncompetes for Workers making less than twice the state minimum wage: What Employers Need to Know About Freedom Vans

By:  Jennifer Scanlon

While the Federal Trade Commission’s rule banning noncompete agreements nationwide has been blocked by federal courts[1], Washington state’s law restricting noncompete agreements has been in effect since 2019, and recently broadened effective June 2024.

Additionally, on January 23, 2025, the Washington Supreme Court handed down a decision which defined the scope of an employee’s common law duty of loyalty as it pertains to statutory restrictions on noncompete agreements. In David v. Freedom Vans LLC the court ruled that agreements with employees earning less than twice the minimum wage ($33.32 per hour in 2025) must be reasonable and that restrictions on employees’ ability to augment their income must be narrowly construed.

Background

In 2019, the Washington legislature enacted HB 1450, effective January 1, 2020, significantly restricting employers’ ability to enter into noncompetition agreements with employees. RCW 49.62.070 prohibits employers from restricting employees earning less than twice the state minimum wage from obtaining additional employment; however, the statute explicitly carves out an exception for employee obligations to employers under the common law duty of loyalty. RCW 49.62.070(2)(b).

In Freedom Vans, a van conversion company entered non-compete agreements with their employees, including Jeremy David and Mark Springer. Under the agreement, employees were prohibited employees from “directly or indirectly engag[ing] in any business that competes” with the company during their employment. The agreement defined “direct or indirect competition” as including, but not limited to, “engaging in a business as owner, partner, or agent” or “becoming an employee of any third party that is engaged” in a “competitive business.” David and Springer claimed they declined offers to take on additional work building or repairing vehicles after signing the agreement.

David and Springer argued that the company’s broad noncompete agreement violated RCW 49.62.070. They contended that the statute protected their right to seek supplemental employment and that the agreement’s restrictions were overly broad. Specifically, they argued the duty of loyalty only prevented direct competition, not indirect competition.

Freedom Vans argued that the noncompete agreement was permissible under the statute, citing the exception related to the common law duty of loyalty. The company asserted that the duty of loyalty extended to “all kinds of assistance” to competitors, regardless of job duties, and that their agreement was necessary to protect their business.

The Court’s Decision and Key Rulings

The Supreme Court disagreed with Freedom Vans interpretation, reasoning that such a broad interpretation of the common law duty of loyalty would “render the employee protections in chapter 49.62 RCW meaningless.” The court further explained the legislature directed employee protections under the statute to be construed liberally and any exceptions construed narrowly. See RCW 49.62.005. 

Thus, the common law duty of loyalty must be narrowly interpreted, and prohibiting “all kinds of assistance” to competitors was too broad.

The court further explained, what is “reasonable” depends on the facts of a particular case; relevant factors are “whether there is a need to protect the employer’s business or goodwill, whether the restraint on the employee is reasonably necessary, and whether enforcing the noncompete agreement violates public policy.” Emerick v. Cardiac Study Ctr., Inc., PS, 189 Wn. App. 711, 721-22 (2015).

As a result, the court reversed the Court of Appeals’ decision and remanded the case to the superior court for determination as to whether the agreement was reasonable and enforceable.

Important Wage Threshold for 2025

• It’s crucial to note that in 2025, the minimum wage in Washington is $16.66 per hour.
• Therefore, RCW 49.62.070 applies to workers currently making less than $33.32 per hour, or, working 40 hours per week at that rate, earning $69,305.60 per year.

What This Means for Employers

• Employers must carefully review their noncompete agreements to ensure compliance with RCW 49.62.070, especially for employees earning less than twice the state minimum wage.
• Employers should ensure that any restrictions based on the duty of loyalty are reasonable and narrowly tailored.

Employers should seek legal counsel to ensure their noncompetition agreements are compliant and enforceable, and to ensure they understand the current wage thresholds.