Since 2020, with the adoption of Washington state’s non-compete statute (Chapter 49.62 of the Revised Code of Washington (“RCW 49.62”)), Washington has imposed significant restrictions on employer use of non-compete agreements with employees and independent contractors, permitting such agreements only subject to certain statutory and common-law requirements, including without limitation, a minimum annual earnings threshold (the 2024 limits are $120,559.99 for employees and $301,399.98 for independent contractors), and a Washington forum for any disputes.

Now, Senate Bill 5935 (“SB 5935”) – which takes effect on June 6, 2024 – amends the non-compete statute to further restrict the use of non-compete provisions and expand the types of agreements that may be considered non-competes. As a result, employers will need to take quick action to review their employment agreements and hiring processes to ensure compliance with the new law.

However, as discussed in our Covington Alert, on April 23, 2024 the Federal Trade Commission issued a final rule purporting to ban the use of non-competes with most U.S. workers.  The FTC Rule – should it become effective – would supersede inconsistent state laws.  The earliest the FTC Rule would take effect is late August 2024, and pending legal challenges may result in court orders that could delay or stay enforcement of the FTC Rule. Accordingly, employers with workers in Washington State should take steps to comply with SB 5935 before it takes effect on June 6, 2024.  Employers should also consider consulting with employment and executive compensation counsel for assistance with navigating the evolving non-compete landscape.

Here is an overview of the key changes under SB 5935:

  1. Covenants that restrict the acceptance or transaction of business with a customer will be considered non-competes. Prior to this latest amendment, the statute defined a non-compete covenant as “every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind.” SB 5935 expands this definition to include any “agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.” Employers should take note that such provisions, which often appear in customer non-solicitation clauses (discussed more below), will now be considered non-competes.
  • Non-solicitation covenants that apply to former or prospective customers are now considered non-competes. Although “non-transaction of business” and “no acceptance of business” provisions are now non-competes under RCW 49.62, the statute continues to exclude non-solicitation covenants (customer and service provider) from the definition of non-compete. However, SB 5935 does narrow this exclusion by limiting customer non-solicitation covenants to only those that prohibit solicitation of “current” customers of the employer, and thus non-solicitation covenants that apply to former or prospective customers will be considered non-competes.
  • Sale of business exception limited to individuals with at least 1% stake. The new law narrows the exception pertaining to sale of business non-competes. Sale of business non-competes will be excluded only if the individual signing the covenant “purchases, sells, acquires, or disposes of an interest representing one percent or more of the business.” Previously, the statute broadly excluded sale of business non-competes from the definition of “noncompetition covenant.”
  • Disclosure timeline has changed. SB 5935 requires that employers disclose the terms of a non-compete covenant in writing to a prospective hire before the individual’s “initial oral or written” acceptance of the offer of employment.  
  • Non-competes must be governed by Washington law. The existing statute requires Washington choice of forum for any non-compete statute. The new law now also specifies that any provision in a non-compete covenant entered into with a Washington service provider that requires the application of choice of law principles or the substantive law of any jurisdiction other than Washington, will be void and unenforceable.
  • Third parties have a cause of action. The existing statute gives a private right of action to parties to a non-compete agreement. SB 5935 removes the requirement that an individual bringing a claim must be a party to the agreement. This means that third parties, such as aggrieved employers prevented from hiring an employee, can now bring a cause of action.
  • Employers could have exposure with respect to non-compete agreements entered into before January 1, 2020, if they “explicitly leverage” the agreement. RCW 49.62 was originally enacted in 2019, and it had retroactive application to non-compete covenants entered into before January 1, 2020, but only if the employer sought to enforce the agreement. As amended, Washington’s non-compete statute will apply to pre-2020 agreements if a party is “explicitly leverag[ing]” the non-compete covenant.

Steps to Get Ready

In light of the challenges to the FTC’s non-compete rule and because SB 5935 will go into effect before the effective date of FTC rule, employers with employees or contractors in Washington should update their forms and processes before June 6, 2024 to comply with the new requirements of SB 5935. Employers should consider taking the following actions:

  • Review employment agreements and templates to determine whether they contain restrictive covenants that are impacted by the new law, with a particular focus on provisions that (i) include “non-transaction of business” or “no acceptance of business” covenants, or (ii) customer non-solicitation covenants that apply to former or prospective customers. Ensure that any such provisions are consistent with the new requirements, and make any revisions as needed.
  • Review hiring processes to ensure the terms of the non-compete are disclosed in writing before the acceptance of a job offer, including oral acceptance. In particular, employers should consider steps that may need to be taken if offers are made orally.
  • Before enforcing or threatening to enforce a non-compete covenant entered into before January 2020, employers should consider consulting with counsel. While SB 5935 specifies that it applies retroactively if a party is “explicitly leverag[ing]” a non-compete covenant, the law does not provide further guidance on what this means.

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Photo of Zachary Agudelo Zachary Agudelo

Zach Agudelo is an associate in the firm’s Washington, DC office. He is a member of both the Employment and Employee Benefits and Executive Compensation Practice Groups.

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Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising…

Lindsay Burke co-chairs the firm’s employment practice group and regularly advises U.S., international, and multinational employers on employee management issues and international HR compliance. Her practice includes advice pertaining to harassment, discrimination, leave, whistleblower, wage and hour, trade secret, and reduction-in-force issues arising under federal and state laws, and she frequently partners with white collar colleagues to conduct internal investigations of executive misconduct and workplace culture assessments in the wake of the #MeToo movement. Recently, Lindsay has provided critical advice and guidance to employers grappling with COVID-19-related employment issues.

Lindsay guides employers through the process of hiring and terminating employees and managing their performance, including the drafting and review of employment agreements, restrictive covenant agreements, separation agreements, performance plans, and key employee policies and handbooks. She provides practical advice against the backdrop of the web of state and federal employment laws, such as Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, the Fair Labor Standards Act, and the False Claims Act, with the objective of minimizing the risk of employee litigation. When litigation looms, Lindsay relies on her experience as an employment litigator to offer employers strategic advice and assistance in responding to demand letters and agency charges.

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Teresa Lewi represents and counsels companies on a wide range of federal, state, and local employment laws. She focuses her practice on trade secrets, non-competition, executive compensation, separation, employee mobility, discrimination, workplace privacy, and wage-and-hour issues.

Teresa represents clients in the life sciences…

Teresa Lewi represents and counsels companies on a wide range of federal, state, and local employment laws. She focuses her practice on trade secrets, non-competition, executive compensation, separation, employee mobility, discrimination, workplace privacy, and wage-and-hour issues.

Teresa represents clients in the life sciences, technology, financial services, sports, and entertainment industries. She has successfully tried cases in federal and state courts, and has resolved numerous disputes through alternative dispute resolution methods. In particular, Teresa has helped companies achieve highly favorable outcomes in high-stakes disputes over the protection of trade secrets and enforcement of agreements with employees. In addition, she defends companies against public accommodation and website accessibility claims under federal and state anti-discrimination laws.

Teresa also conducts specialized internal investigations and assessments designed to help companies protect their confidential information and trade secrets from employee misappropriation and cybersecurity incidents.

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Evan Parness has a full-service labor and employment practice that includes litigating cutting-edge issues at the trial and appellate levels, negotiating employment aspects of complex M&A deals and other business transactions, and counseling global employers on compliance with national, state, and local employment…

Evan Parness has a full-service labor and employment practice that includes litigating cutting-edge issues at the trial and appellate levels, negotiating employment aspects of complex M&A deals and other business transactions, and counseling global employers on compliance with national, state, and local employment laws and regulations.
Evan represents employers and senior executives in non-compete, harassment, discrimination, retaliation, ERISA, and business tort litigation in state and federal courts, administrative agencies, and alternative dispute resolution bodies. He has secured significant trial and appellate victories for clients, including complete dismissals of discrimination and retaliation lawsuits, successful verdicts following trial, and injunctive relief on behalf of clients enforcing restrictive covenants.

Evan also counsels established and emerging companies on compliance with federal, state, and local employment laws and regulations, and litigation avoidance measures in connection with all aspects of workplace employment issues. He conducts sensitive internal investigations of alleged discrimination and harassment, and assists employers in shaping workplace policies to comply with law and promote a productive working environment.

Evan advises leading companies on the labor and employment aspects of significant business transactions and acquisitions. He negotiates employment-related provisions in business transaction documents and oversees due diligence of a potential target’s employment practices. He also counsels clients on executive employment and restrictive covenants agreements.

Chambers USA notes “Evan is an exceptional and talented lawyer. He possesses a deep understanding of the law and an unwavering commitment to his clients. He has a keen eye for detail and can dissect complex legal issues with remarkable efficiency. His thorough and methodical approach to each case ensures that no stone is left unturned, providing his clients with the best possible legal representation.”

The Legal 500 US notes that clients have commented that “Evan Parness is an amazing attorney. Always attentive and will take instructions outside of business hours, he is always there when we need him and looks for the best outcome for clients.”

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Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. She conducts workplace investigations and cultural assessments, leads audits regarding employee classification, wage and hour, and I-9 compliance, advises on employment issues arising in corporate transactions, and provides strategic counsel to clients on a wide range of workplace matters, including harassment and #MeToo issues, wage and hour, worker classification, employee accommodations, termination decisions, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies. Her approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

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Christen Sewell counsels private and public companies and executives on all aspects of employee benefits and executive compensation.

Christen has a particular focus on benefits issues for start-ups and emerging growth companies, including:

  • Advising on the design, compliance, and administration of stock options

Christen Sewell counsels private and public companies and executives on all aspects of employee benefits and executive compensation.

Christen has a particular focus on benefits issues for start-ups and emerging growth companies, including:

  • Advising on the design, compliance, and administration of stock options and equity-based plans and arrangements.
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Christen’s expertise covers:

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