(2) The evidence is clear. Banning noncompetition covenants will incentivize innovation and entrepreneurship, increase wages, and even reduce health care costs. To that end, in 2024 the federal trade commission adopted rules banning noncompetition covenants nationwide. Unfortunately, those rules have not been fully implemented. Washington's workers and businesses should not have to wait years for federal court rulings on a nationwide ban when the state has the authority to extend these protections.

(3) The legislature hereby intends to ban noncompetition covenants for all Washington-based workers and businesses. Yet the legislature recognizes the limitations of a state ban. Workers in all jurisdictions need these same protections. But other states may be slow to act or will not act despite compelling economic interests. The state also does not intend for this act to modify or interfere with the sovereignty of tribal nations or with their exclusive jurisdiction to govern employment standards for employees working in Indian country for a business owned by a federally recognized tribe or tribal member. By joining other states that have banned noncompetition covenants, Washington will demonstrate the benefits to other states, tribes, and jurisdictions. Let the actions of this legislature to improve prosperity for all pave the way for the nation.

The legislature finds that:

(1) Workforce mobility is important to economic growth and development;

(2) Agreements limiting competition or hiring restrain trade and commerce and may be contracts of adhesion that may be unreasonable; and

(3) The provisions in this chapter facilitating workforce mobility and protecting employees and independent contractors need to must be liberally construed and exceptions narrowly construed. In addition, nonsolicitation agreements, which prohibit an employee from actively soliciting current customers or employees away from the employer, are not prohibited; however, the definition of nonsolicitation agreement must be narrowly construed.

The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.

(1) "Earnings" means the compensation reflected on box one of the employee's United States internal revenue service form W-2 that is paid to an employee over the prior year, or portion thereof for which the employee was employed, annualized and calculated as of the earlier of the date enforcement of the noncompetition covenant is sought or the date of separation from employment. "Earnings" also means payments reported on internal revenue service form 1099-MISC for independent contractors.

(2) "Employee" and "employer" have the same meanings as in RCW 49.17.020.

(3) (2) "Franchisor" and "franchisee" have the same meanings as in RCW 19.100.010.

(4) (3)(a) "Noncompetition covenant" includes every written or oral covenant, agreement, or contract by which that prohibits or restrains an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind.

(b) "A noncompetition covenant" also includes a covenant, agreement, or contract between a performer and a performance space, or a third party scheduling the performer for a performance space, that prohibits or restrains the performer from engaging in a lawful performance.

(c) A "noncompetition covenant" also includes an agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer.

(d) A "noncompetition covenant" also includes any provision in an agreement that threatens, 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.

(e) A "noncompetition covenant" does not include: (a) (i) A nonsolicitation agreement; (b) (ii) a confidentiality agreement; (c) (iii) a covenant prohibiting use or disclosure of trade secrets or inventions; (d) (iv) a covenant entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, but only if the person signing the covenant purchases, sells, acquires, or disposes of an ownership interest representing one percent or more of the business; or (e) (v) a covenant entered into by a franchisee when the franchise sale complies with RCW 19.100.020(1); or (vi) a written agreement to repay out-of-pocket educational expenses if the agreement: (A) Expires within 18 months of the employee's start date for employment; (B) limits repayment to the pro rata portion of the remaining time of the 18-month period; and (C) releases the employee from the obligation to repay if the employee's separation from employment is based on "good cause" under RCW 50.20.050.

(5) (4) "Nonsolicitation agreement" means an agreement between an employer and employee that prohibits solicitation by an employee, upon termination of employment: (a) Of any employee of the employer to leave the employer; or (b) of any current or prospective customer, patient, or client of the employer to cease or reduce the extent to which it is doing business shift business away from with 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. An agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer, patient, or client is not a "nonsolicitation agreement."

(6) (5) "Party seeking enforcement" means the named plaintiff or claimant in a proceeding to enforce a noncompetition covenant or the defendant in an action for declaratory relief.

(1) A Beginning on the effective date of this section, all noncompetition covenants is are void and unenforceable:

(a)(i) Unless the employer discloses the terms of the covenant in writing to the prospective employee no later than the time of the initial oral or written acceptance of the offer of employment and, if the agreement becomes enforceable only at a later date due to changes in the employee's compensation, the employer specifically discloses that the agreement may be enforceable against the employee in the future; or

(ii) If the covenant is entered into after the commencement of employment, unless the employer provides independent consideration for the covenant;

(b) Unless the employee's earnings from the party seeking enforcement, when annualized, exceed one hundred thousand dollars per year. This dollar amount must be adjusted annually in accordance with RCW 49.62.040;

(c) If the employee is terminated as the result of a layoff, unless enforcement of the noncompetition covenant includes compensation equivalent to the employee's base salary at the time of termination for the period of enforcement minus compensation earned through subsequent employment during the period of enforcement.

(2) A court or arbitrator must presume that any noncompetition covenant with a duration exceeding eighteen months after termination of employment is unreasonable and unenforceable. A party seeking enforcement may rebut the presumption by proving by clear and convincing evidence that a duration longer than eighteen months is necessary to protect the party's business or goodwill. regardless of when the parties entered into the noncompetition covenant.

(2) It is a violation of this chapter for an employer to enforce, attempt to enforce, or threaten to enforce against an employee or worker any noncompetition covenant, to represent that the employee or worker is subject to a noncompetition covenant, or to enter into or attempt to enter into a noncompetition covenant with an employee or worker.

(3) By October 1, 2027, an employer must make reasonable efforts to provide written notice to all current and former employees and independent contractors whose noncompetition covenant is still within its effective time period, that their noncompetition covenant is void and unenforceable.

(1) Upon a violation of this chapter, the attorney general, on behalf of a person or persons, may pursue any and all relief. A person aggrieved by a noncompetition covenant violation of this chapter may bring a cause of action to pursue any and all relief provided for in subsections (2) and (3) of this section.

(2) If a court or arbitrator determines that a noncompetition covenant violates person has violated this chapter, the violator must pay the aggrieved person the greater of his or her actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys' fees, expenses, and costs incurred in the proceeding.

(3) If a court or arbitrator reforms, rewrites, modifies, or only partially enforces any noncompetition covenant, the party seeking enforcement must pay the aggrieved person the greater of his or her actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys' fees, expenses, and costs incurred in the proceeding.

(4) A cause of action may not be brought regarding a noncompetition covenant signed prior to January 1, 2020, if the noncompetition covenant is not being enforced or explicitly leveraged.

(1)(a) Subject to (b) subsection (2) of this subsection, this chapter displaces conflicting tort, restitutionary, contract, including contract principles relating to discharge by assent or alteration, and other laws of this state pertaining to liability for competition by employees or independent contractors with their employers or principals, as appropriate.

(b) (2) This chapter does not amend or modify chapter 19.108 RCW.

(2) Except as otherwise provided in this chapter, this chapter does not revoke, modify, or impede the development of the common law.

This chapter applies to all proceedings commenced on or after January 1, 2020, (1) RCW 49.62.010, 49.62.020, 49.62.080, and 49.62.090 apply to all proceedings commenced on or after the effective date of this section, regardless of when the cause of action arose. To this extent, this chapter applies retroactively, but in all other respects it applies prospectively.

(2) Legal proceedings commenced before the effective date of this section will be governed by this chapter as amended prior to the effective date of this section.

1RCW 49.62.030 (When void and unenforceable against independent contractors) and 2019 c 299 s 4;

2RCW 49.62.040 (Dollar amounts adjusted) and 2019 c 299 s 5; and

3RCW 49.44.190 (Noncompetition agreements for broadcasting industry employees—Restrictions—Trade secrets protected) and 2005 c 176 s 1.