For the third year in a row, the Washington state legislature failed to pass non-compete legislation, declining to take action on two separate bills that would have severely restricted employers’ ability to enforce former employees’ non-competition agreements.
The House bill would have prohibited non-compete agreements for certain classes of employees, such as those working fewer than 40 hours per week, employees earning less than 200 percent of Washington’s minimum wage, independent contractors, and employees working a second job. The Senate bill was even more restrictive, and would have largely imitated California’s extremely restrictive non-compete laws. That bill would have prohibited all non-competes except for those cases in which an employee sells an ownership interest in a business entity to a buyer operating a competitive business; it would have also provided certain exemptions for those disassociating from business partnerships. Although both the Senate and House had bills made it out of committee, neither was called up for a final vote by either chamber by the February 14, 2018 deadline, effectively killing the bills.
Similar to other states, such as Massachusetts, Washington has now failed to pass non-compete legislation over the past few legislative sessions. Washington’s struggles to restrict the enforcement of non-competes has irked some members of Washington’s technology industry, who view non-competes as barriers to innovation. Such critics argue that enforcement of non-competes makes Washington a less desirable location for startups that prefer to set up shop in states such as nearby employee-friendly California, which is notoriously hostile to non-competes.
On the other hand, Michael Schutzler, CEO of the Washington Technology Industry Association, shared his belief that legislation effectively killing all non-competes was not rushed through, noting his belief that a “new non-compete law can easily help or hurt our state” and that such legislation “should not be rushed for political expediency.” Schutzler went on to dismiss the notion that California bans all non-competes as “specious,” pointedly referring to what he deemed “well-documented collusion” (likely referring to high-profile settlement agreements entered into by the likes of Apple and Google following the exposure of highly criticized no-poaching agreements between industry giants). Schutzler also noted that “Washington has a higher concentration of inventions, patents filed, and software developers than California partly because strategic and financial investors have confidence in our ecosystem.”
As we have addressed previously, Schutzler’s position that banning non-competes is not necessarily in a community’s best interest is shared by others in the tech industry, who argue that non-competes are necessary tools to protect against the misappropriation of trade secrets and foster confidence that investments in research and development will not be compromised when an employee departs for a competitor. Proponents of non-competes also point out that there are other factors that may distinguish California from states that enforce non-competes, thus potentially diminishing the argument that California’s success in tech innovation is solely (or even predominantly) due to the state’s strong opposition to certain restrictive covenants.
For now, non-competes remain enforceable in Washington, although legislators will likely consider restrictions on such agreements in its next legislative session. We will continue to monitor developments in state legislatures throughout the country, including Washington, to see whether bills restricting the enforceability of non-competes actually become law.