Washington State Updates And Clarifies Noncompetition And Nonsolicitation Law

• Published date: 05 April 2024
• Subject Matter: Employment and HR, Intellectual Property, Employee Rights/ Labour Relations, Trade Secrets
• Law Firm: Ogletree, Deakins, Nash, Smoak & Stewart
• Author: Mr Adam T. Pankratz

The 2024 Washington State Legislature passed Substitute Senate Bill (S.S.B.) 5935 in February 2024, and Governor Jay Inslee signed the bill into law on March 13, 2024, updating and clarifying Washington law regarding restrictive covenants (RCW 49.62 et seq.). The new provisions take effect on June 6, 2024.

Quick Hits

• Governor Jay Inslee signed legislation that updates and clarifies Washington's law regarding restrictive covenants.
• The legislation provides that a 'noncompetition covenant' 'includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.'
• Customer nonsolicitations are now limited to current customers.
• The new provisions take effect on June 6, 2024.

Importantly, newly enacted S.S.B. 5935 clarifies some ambiguities in the existing law and expands other protections in the law, which Governor Inslee signed into law in 2019 and took effect in 2020.

The following are the key changes to the law.

Updated Definitions of 'Noncompetition Covenant' and 'Nonsolicitation Agreement'

The prior definition of 'noncompetition covenant' in RCW 49.62.010(4) included a broad definition that included any 'covenant, agreement, or contract' that 'prohibited or restrained [someone] from engaging in a lawful profession, trade, or business of any kind.' The law also excluded from its definition nonsolicitation agreements. The definition, however, did not address the standard provision often found in nonsolicitation clauses that prohibits accepting business from a customer of the prior employer. The new 'noncompetition covenant' definition clarifies this issue and now states that '[a] 'noncompetition covenant' also includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.'

In addition to excluding nonsolicitation agreements from the broad definition of noncompetition covenants, the prior definition also excluded agreements when the person signing the agreement purchased or sold the goodwill of a business or acquired or disposed of an ownership interest. Under the new law, the sale, acquisition, or disposal of an interest in a business must be 'one percent or more of the business.'

Under the restrictive covenant law, the legislature narrowly defined nonsolicitation agreements as only those agreements that prohibited soliciting an employee to leave the employment of an employer and that prohibited soliciting a customer to cease or reduce doing business with...