Washington State Dramatically Expands Noncompete Ban

Washington’s House Bill 1155 bans noncompetition agreements for all workers in the state, effective June 30, 2027. This law not only voids existing and future noncompetition covenants but also imposes new compliance and notification obligations on employers and contractors.

KEY TAKEAWAYS

• Under new legislation, all noncompetition covenants in Washington will be void and unenforceable as of June 30, 2027, regardless of when they were executed.
• Noncompetes are defined broadly to include some customer nonsolicitation agreements, as well as agreements to repay or forfeit pay or benefits if the individual engages in lawful business activity.
• The law applies retroactively and requires employers to notify affected employees and independent contractors by October 1, 2027.
• Statutory damages and attorney fees are potentially available to aggrieved workers, and the Attorney General may bring enforcement actions.
• Certain agreements, including narrowly defined nonsolicitation covenants, confidentiality agreements, and covenants tied to the sale of a business, are not prohibited by the new legislation.

BACKGROUND

The legislature’s action follows years of growing focus on noncompetition covenants. The legislature opined that such covenants “hinder innovation and entrepreneurship, suppress wages, reduce job mobility, and ultimately harm consumers and the economy.” While Washington previously limited noncompetition covenants for lower-wage earners in 2019, the legislature has now determined that “this did not go far enough” and that even for high-wage earners, meaningful negotiation over such covenants is “largely a legal fiction.” The legislature also concluded that businesses have “more specific and effective legal means to protect intellectual property, trade secrets, and clients without harming workers, contractors, and the public.”

DEFINITIONS AND SCOPE CLARIFIED

The law provides a number of definitions to clarify its scope and reach. The term “[n]oncompetition covenant” is defined to include “every written or oral covenant, agreement, or contract that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business of any kind,” and includes an agreement that:

• “[T]hreatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.”
• Directly or indirectly prohibits acceptance or transaction of business with a customer.
• Prohibits or restrains a performer from engaging in a lawful performance, where the agreement is between a performer and performance space or a third party scheduling the performer for a performance space.

Importantly, the law does not classify the following agreements as noncompetition covenants:

• Employee nonsolicitation agreements;
• Nonsolicitation of any current or prospective customers, patients, or clients to shift business away from the employer if the employee established or substantially developed a direct relationship with the customer, patient, client, or prospect through the employee’s work for the employer and the prohibition expires no later than 18 months following termination of employment;
• Confidentiality agreements;
• Covenants prohibiting use or disclosure of trade secrets or inventions;
• Covenants related to the sale of a business, so long as the individual signatory purchases, sells, acquires or disposes of an ownership interest of at least 1% of the business;
• Franchise agreements compliant with RCW 19.100.020(1);
• Written agreements to repay out-of-pocket educational expenses if the agreement: (1) expires within 18 months of the employee’s start date for employment; (2) limits repayment to the pro rata portion of the remaining time of the 18-month period; and (3) releases the employee from the obligation to repay if the employee’s separation from employment is based on “good cause” under RCW 50.20.05. “Good cause” is defined to include many voluntary separations.

RETROACTIVE ACTION

The statute’s purportedly retroactive reach is a critical feature of the new framework. Under the law, “all noncompetition covenants are void and unenforceable, regardless of when the parties entered into the noncompetition covenant.” This includes agreements executed before the effective date if they are still within their operative period as of June 30, 2027. Employers are expressly prohibited from enforcing, attempting to enforce, threatening to enforce, or representing that any worker is subject to a noncompetition covenant. It is very possible that some parties to existing or future litigation will dispute whether the retroactive application of the statute is constitutional or otherwise appropriate, depending on the circumstances.

NOTICE REQUIREMENT

By October 1, 2027, the statute requires employers to “make reasonable efforts” to provide written notice to all current and former employees and independent contractors whose noncompetition covenant is still within its effective period. The notice is required to state that their noncompetition covenants are void and unenforceable. Once again, it is possible that this provision will be subject to constitutional challenges.

PRIVATE RIGHT OF ACTION

Enforcement mechanisms under the new law are aggressive. According to the amendment, any “person aggrieved by a violation of this chapter may bring a cause of action to pursue any and all relief” provided by the statute. The new legislation provides for actual damages or statutory damages of $5,000, plus reasonable attorney fees, expenses, and costs incurred in the proceeding. Additionally, the Washington Attorney General is authorized to “pursue any and all relief” on behalf of ”a person or persons.”

EXEMPTIONS AND EFFECTIVE DATES

The act clarifies that it does not alter or interfere with the sovereignty of tribal nations or their exclusive jurisdiction over employment standards for employees working in Indian country for a tribally owned business.

The effective date for the ban is June 30, 2027, with a notification deadline for employers of October 1, 2027. The amendment purports to apply to all proceedings commenced on or after the effective date, regardless of when the cause of action arose.

IMPLICATIONS OR RECOMMENDATIONS

The new law marks a fundamental shift for employers, workers, and the broader Washington market. Employers should promptly identify and review all employment, contractor, and related agreements for noncompetition provisions, including certain customer nonsolicitation provisions and repayment agreements, that will become void on June 30, 2027 if this law is upheld. Preparation to notify current and former employees and independent contractors by the October 1, 2027, deadline is essential to comply with the terms of the statute as written.

Businesses relying on restrictive covenants will need to shift to alternative mechanisms for protecting legitimate business interests. Out of an abundance of caution, it would be prudent to remove or revise provisions that could be interpreted as indirect noncompete restrictions or as imposing forfeiture for post-employment competition to avoid the risk of extraordinary statutory penalties, especially in class actions or Attorney General actions.

With statutory damages, attorney fees, and costs available in some cases, the risk of litigation and enforcement is substantial. Companies with operations in multiple jurisdictions should coordinate compliance efforts to address potential conflicts of law and ensure compliance with Washington law for covered workers.