Following the national trend of restricting employment-based non-compete covenants, Washington has effectively banned all non-competes effective June 30, 2027. Governor Bob Ferguson recently signed Engrossed Substitute House Bill 1155 (“SB 1155”), which bans non-compete agreements for virtually all employees and independent contractors in Washington.
While Washington previously limited restrictive covenants through legislation (discussed here), SB 1155 eliminates the old wage-threshold approach entirely and deems virtually all non-compete agreements void and unenforceable regardless of when they were signed. The key requirements and implications of the new law are as follows:
Broad Definition of Non-Compete
The law defines a non-compete broadly. It covers any written or oral agreement that prohibits or restrains an employee or independent contractor from engaging in a lawful profession, trade, or business. The definition also captures agreements that prohibit a worker from accepting or transacting business with a customer, as well as any agreement that requires a worker to return, repay, or forfeit compensation or benefits as a penalty for engaging in lawful work. Such an expansive definition means employers should scrutinize not just their standalone non-compete agreements, but also ancillary provisions in offer letters, equity agreements, and contractor agreements that could be construed as non-competes.
What Remains Permissible
The following categories of agreements generally remain enforceable:
Non-Solicitation Agreements. Non-solicitation agreements remain enforceable in limited circumstances. Employers may prevent departing employees from actively soliciting the employer’s current employees to leave, or from soliciting current or prospective customers, patients, or clients to shift their business away from the employer.
Customer non-solicitation agreements, on the other hand, are only permitted where the employee established or substantially developed a direct relationship with the customer through their work. Additionally, the restriction must expire no later than 18 months after the employee’s departure. Importantly, any agreement that directly or indirectly prohibits a worker from accepting business from a customer is treated as a non-compete—not a non-solicitation agreement. Employers drafting customer non-solicitation provisions will need to be particularly careful to ensure compliance with the new law.
Confidentiality and Trade Secret Agreements. Agreements that protect confidential information, trade secrets, or inventions are not affected by the ban. Employers should ensure, however, that their confidentiality agreements do not function as de facto non-competes—meaning they should not prohibit the disclosure of information arising from the worker’s general training, knowledge, skill, or experience, or information that is readily ascertainable to the public.
Sale of Business Agreements. A non-compete entered into in connection with the purchase or sale of a business remains enforceable, but only if the person signing the agreement is buying, selling, or otherwise acquiring or disposing of an ownership interest representing 1% or more of the business.
The law also contemplates the permissibility of other agreements, such as franchise agreements and educational expense repayment agreements.
Retroactivity and Notice Requirements
The law applies retroactively in a significant way: all existing non-compete agreements are void and unenforceable as of the effective date, regardless of when they were signed. However, legal proceedings that were already filed before the effective date will be governed by the prior version of the law. This retroactive application makes it all the more important for employers to begin auditing their existing agreements now.
In addition, by October 1, 2027, employers must make reasonable efforts to provide written notice to all current and former employees and independent contractors whose non-compete agreement is still within its stated time period, informing them that their non-compete is void and unenforceable. Failure to send out written notice will itself be considered a violation of the law, potentially exposing employers to the penalties outlined below.
Penalties for Non-Compliance
The law imposes costly penalties for non-compliance. If a court or arbitrator determines that an employer has violated the law, the employer must pay the affected worker the greater of actual damages or a statutory penalty of $5,000, plus reasonable attorneys’ fees, expenses, and costs. The law includes a private right of action and also provides that the Washington Attorney General may bring enforcement actions on behalf of affected workers. These remedies should sound familiar to practitioners who followed Colorado’s 2022 restrictive covenant reforms, which similarly imposed a $5,000 statutory penalty.
Key Takeaways for Employers
Although the law does not take effect until June 30, 2027, employers should begin preparing now. In particular, employers should review all current employment agreements, offer letters, and contractor agreements to identify any provisions that may qualify as a non-compete under the law’s broad definition. Employers should also consider whether existing protections, such as confidentiality agreements, trade secret protections, and narrowly tailored non-solicitation agreements, adequately protect the company’s legitimate business interests within the bounds of the new law. Finally, employers should plan to send written notices to current and former employees and contractors no later than October 1, 2027.
