Washington State Enacts Sweeping Ban on Noncompete Agreements

On March 23, Washington Governor Bob Ferguson signed Engrossed Substitute House Bill 1155 (ESHB 1155 or the Act) into law, effectively banning noncompete agreements between employers and employees and independent contractors in Washington. Because the Act applies retroactively, effective June 30, 2027, almost all existing noncompetition covenants are void and unenforceable, regardless of when they were signed, with only a few narrow exceptions. 

This alert summarizes the key provisions of the Act, identifies the agreements that remain permissible, and offers practical recommendations for employers seeking to protect their interests through enforceable restrictive covenants. 

Background

Prior to ESHB 1155, Washington regulated noncompete agreements under a 2019 statute (RCW 49.62), which prohibited the enforcement of noncompetes against employees and independent contractors other than certain high-wage earners. The legislature found that those earlier reforms “did not go far enough,” thus, ESHB 1155 eliminates the income-threshold approach entirely and declares that virtually all noncompetition covenants are void and unenforceable, regardless of an employee’s compensation level, job title, or industry. 

The Act

Broad Definition of “Noncompetition Covenant”

The Act defines a “noncompetition covenant” expansively. It includes any 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. 

• Directly or indirectly prohibits the acceptance or transaction of business with a customer (commonly referred to as “customer non-servicing” provisions). 

• Threatens, demands, requires, or otherwise effectuates the return, repayment, or forfeiture of any right, benefit, or compensation as a consequence of the individual engaging in a lawful profession, trade, or business (commonly referred to as “forfeiture-for-competition” or “clawback” provisions). 

• Prohibits or restrains a performer from engaging in a lawful performance under agreements with performance spaces or third-party schedulers. 

This definition is broader than other states’ noncompete statutes. In particular, by including customer non-servicing provisions and forfeiture-for-competition clauses, the Act’s definition of a noncompetition covenant reaches provisions that are triggered by post-employment competitive activity. Employers should be mindful that provisions not labeled as noncompetes may still be considered void if they function as a deterrent to post-employment competition. 

One notable exception is preserved at least in part by the Act. The “sale-of-business exception” excludes from the definition of noncompetition covenants those covenants that are tied to the purchase or sale of a business, but only where what is being acquired or sold is “an ownership interest representing one percent or more of the business.” The 1% threshold apparently is intended to prevent employers from seeking to circumvent the noncompete prohibitions by granting de minimis equity to lower-level employees. While noncompetition covenants are permitted in these limited circumstances, the scope of the exception is not well defined and may raise nuanced issues when sought to be applied, especially with retroactive application. 

Prohibited Employer Conduct

Beginning June 30, 2027, it is a violation of the Act for an employer to:

• Enforce, attempt to enforce, or threaten to enforce any noncompetition covenant against an employee or worker.

• Represent to an employee or worker that they are subject to a noncompetition covenant. 

• Enter into, or attempt to enter into, a new noncompetition covenant with an employee or worker. 

Written Notice Requirement

By October 1, 2027, employers must make reasonable efforts to provide written notice to all current and former employees and independent contractors whose noncompetition covenants are still within their stated effective time period, informing them that their noncompete agreements are void and unenforceable. Failure to provide such notice constitutes a violation of the Act and may subject the employer to liability. 

Penalties for Violations

If it is determined that an employer has violated the Act, the employer must pay the affected worker the greater of actual damages or a statutory penalty of $5,000, plus attorneys’ fees, expenses, and costs. In addition to a private right of action for affected workers, the Washington Attorney General may bring enforcement actions on behalf of aggrieved individuals. 

Choice-of-Law and Out-of-State Employees

The Act leaves intact RCW 49.62.050, which renders void and unenforceable any contractual provision that requires a Washington-based employee or independent contractor to adjudicate a noncompetition covenant outside of Washington, applies the substantive law of any jurisdiction other than Washington, or otherwise deprives the employee or independent contractor of the protections or benefits of Washington’s noncompete statute. In other words, employers cannot avoid the Act’s requirements by including choice-of-law or forum-selection clauses that point to states where noncompetes remain enforceable. Any such provision in an agreement with a Washington-based worker is void as a matter of Washington law. 

Washington-based employers with employees working in other states should also exercise caution. While the Act by its terms applies only to Washington-based workers, multistate employers face the practical challenge that many states are increasingly hostile to noncompete agreements, and the enforceability of such agreements is governed by a patchwork of state laws. Employers should carefully evaluate which state’s law governs any particular employee relationship and tailor their restrictive covenants accordingly.

Restrictive Covenants That Remain Enforceable

Although the Act is expansive, it does not prohibit all restrictive covenants. Non-solicitation agreements and trade secret protections, for example, are expressly excluded from the definition of “noncompetition covenant” and remain enforceable, subject to specified limitations.

Non-Solicitation Agreements

Non-solicitation agreements remain permissible, but the Act requires that the definition of non-solicitation agreement be narrowly construed. Permissible non-solicitation agreements include:

• Employee Non-Solicitation: Agreements that prohibit a departing employee from soliciting the employer’s current employees to leave the employer. 

• Customer Non-Solicitation: Agreements that prohibit a departing employee from soliciting any current or prospective customer, patient, or client of the employer to shift business away from the employer, provided that (1) 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 (2) the restriction expires no later than 18 months following termination of employment. 

Critically, any agreement that directly or indirectly prohibits the acceptance or transaction of business with a customer is treated as a prohibited noncompetition covenant, not a permissible non-solicitation agreement. In other words, a non-solicitation clause cannot be drafted so broadly as to prevent a former employee from doing business with a customer who independently approaches the employee, even without any solicitation by the employee. 

Confidentiality and Trade Secret Agreements

Agreements that protect confidential information, trade secrets, or inventions are not affected by the ban. These remain fully enforceable so long as they are not drafted with such overbreadth that they become mere disguised noncompetes. 

Practical Steps That Companies Can Take

In light of the Act, employers with operations in Washington or with employees working in the state should reconsider their approach to restrictive covenants. Below are practical steps that protect legitimate business interests while complying with ESHB 1155. 

For Washington-Based Employees

1. Draft narrowly tailored customer non-solicitation provisions. Customer non-solicitation agreements remain enforceable, but only if they are carefully crafted. Each agreement should (1) restrict only the active solicitation of customers, patients, or clients (and their prospects) to shift business away from the employer; (2) be limited to individuals with whom the departing employee established or substantially developed a direct relationship through their work; and (3) expire no later than 18 months after the employee’s departure. Employers should avoid language that could be construed as prohibiting the acceptance or transaction of business with a customer, as such provisions will be treated as void noncompetes.

2. Use employee non-solicitation agreements. Agreements preventing departing employees from soliciting current employees to leave the employer remain enforceable and are not subject to the 18-month durational cap that applies to customer non-solicitation agreements. Nevertheless, employers should keep these provisions reasonable in scope to minimize enforcement risk.

3. Strengthen confidentiality and trade secret protections. With noncompetes effectively off the table, confidentiality agreements become the primary contractual mechanism for safeguarding proprietary information. Employers should ensure that confidentiality agreements clearly define what constitutes “confidential information,” impose specific obligations on employees during and after their employment, and are supported by strong internal data-protection practices, including limiting access to sensitive information on a need-to-know basis, implementing robust exit procedures, and conducting regular audits of information security protocols. 

4. Review equity, bonus, and incentive compensation arrangements. The Act’s broad definition of noncompetition covenants captures forfeiture-for-competition provisions in stock option agreements, restricted stock unit plans, retention bonus agreements, and similar compensation structures. Provisions that require the return, repayment, or forfeiture of compensation as a consequence of engaging in competitive activity after leaving employment are likely void under the Act. Employers should restructure these arrangements to ensure that forfeiture or clawback triggers are based on criteria other than post-employment competitive activity, such as a general resignation before a vesting date, violation of confidentiality obligations, or for-cause termination.

5. Ensure educational expense repayment agreements comply with the statutory safe harbor. If an employer uses educational expense repayment agreements, they should be carefully drafted to satisfy each of the statutory conditions: an 18-month maximum term from the employee’s start date, pro-rata repayment, and a release of the repayment obligation in the event of a good-cause separation under RCW 50.20.050.

For Out-of-State Employees of Washington-Based Employers

1. Conduct a state-by-state analysis of applicable law. The enforceability of noncompete agreements varies significantly from state to state. Washington-based employers with employees in other states should not assume that a single form of restrictive covenant agreement will be enforceable across all jurisdictions. Before including a restrictive covenant in an agreement with an out-of-state employee, employers should analyze the law of the state where the employee primarily works, resides, or is otherwise based, as that state’s law may govern. 

2. Consider using choice-of-forum provisions. Even if foreign law clearly governs an out-of-state employee’s restrictive covenants, Washington courts may be reluctant to enforce noncompetition agreements in disputes between Washington-based employers and non-Washington employees. Washington-based employers should consider strategies for protecting a more favorable choice of forum for suits with their non-Washington employees. 

3. Focus on protections that are broadly enforceable. Confidentiality agreements, trade secret protections (including under the federal Defend Trade Secrets Act), and employee non-solicitation provisions are generally enforceable in most states. Employers should prioritize these protections for all employees, supplementing them with jurisdiction-specific non-solicitation or noncompete provisions where permissible.

Immediate Action Items for Employers

Although the Act does not take effect until June 30, 2027, employers should begin preparing now. The compliance burden is significant, particularly with respect to the notice requirements that must be satisfied by October 1, 2027. Potential action items include:

• Audit all existing agreements. Review all employment agreements, offer letters, separation agreements, independent contractor agreements, equity plans, bonus arrangements, and employee handbooks to identify provisions that may qualify as noncompetition covenants under the Act. 

• Identify employees and former employees who must receive notice. Compile a list of all current and former employees and independent contractors who are subject to noncompetition covenants that are still within their effective time period. This may require a review of historical records.

• Develop compliant agreement templates. Work with counsel to prepare updated employment agreement templates that rely on permissible restrictive covenants, including narrowly tailored non-solicitation agreements, robust confidentiality protections, and compliant educational expense repayment provisions. 

• Prepare and distribute notice letters. Draft written notice letters informing affected current and former employees and independent contractors that their noncompetition covenants are void and unenforceable. Plan to distribute these notices well in advance of the October 1, 2027 deadline. 

• Train HR, management, and recruiting teams. Ensure that human resources professionals, hiring managers, recruiters, and executives understand the new law and do not make representations that are inconsistent with the Act. 

Conclusion                                                                         

ESHB 1155 is a fundamental shift in Washington’s approach to noncompetition agreements, moving from a system of regulated enforceability to a near-total prohibition. The Act’s broad definition of prohibited agreements, retroactive reach, and significant penalties demand prompt and careful attention from employers with any connection to Washington state. Employers that begin revising their agreements and internal practices now will be best positioned to comply with the Act and protect their business interests through the restrictive covenants that remain available.