Breaking the Bind: Washington Bans Non-Compete Agreements
On March 23, 2026, Governor Bob Ferguson signed into law HB 1155, which effectively bans nearly all non-competition agreements for Washington-based employees and independent contractors. With this law going into effect on June 30, 2027, Washington joins California, Minnesota, Montana, North Dakota, Wyoming, and Oklahoma in prohibiting non-competition agreements.
As of June 30, 2027, it will be illegal for an employer to attempt to enter into, enforce, or represent to employees and independent contractors that they are subject to a non-competition covenant. All non-competition covenants, with narrow exceptions, impacting Washington-based employees and independent contractors are void and unenforceable, regardless of when the parties entered into the non-competition agreement. By October 1, 2027, all employers must make reasonable efforts to provide written notice to any current or former employee or independent contractor who is still within the effective time period that the non-competition covenant is void and unenforceable.
Non-Competition Covenant is Broadly Defined
The prohibition on non-competition covenants must be “liberally construed” and exceptions “narrowly construed.” A “noncompetition covenant” is defined as “any covenant, agreement, or contract that prohibits or restrains an employee or an independent contractor from engaging in a lawful profession, trade, or business of any kind.” Based on this definition, any restriction placed on an employee or independent contractor that prevents the employee from engaging in a lawful profession or business falls under the definition of a non-competition covenant and is subject to the new legislation. The agreement does not have to reference a non-competition covenant. If the agreement restrains the employee from conducting business or trade, it will be considered a non-competition covenant.
Along with prohibiting or restraining an employee from engaging in a lawful profession, the ban includes:
- Restrictions on joining a competitor;
- Limitations on doing business with customers; and
- Requiring employees to repay or forfeit compensation if they accept another job. This is a newly added section to the statute governing non-competition covenants. The purpose of this addition is to prohibit employment agreements with claw-back terms or bonuses that are offered to incentivize an employee not to compete against the employer.
Narrow Exceptions to the Prohibition of Non-Competition Covenants
- Employers may still enforce non-solicitation agreements that prohibit the solicitation of employees to leave the employer.
- Employers may still enforce non-solicitation agreements that prohibit the solicitation of current or prospective customers, patients, or clients of the employer to “shift business away” from the employer, if the employee established or developed a relationship through work and the prohibition is no longer than an 18-month restrictive period.
- Employers may still restrict the use of or possession of a company’s confidential and proprietary information and prohibit the use or disclosure of trade secrets or inventions.
- Non-competition covenants between franchisees arising out of a franchise sale remain permitted.
- Non-competition covenants during the sale of a business are valid so long as the individual holds at least a one percent ownership interest.
- A newly added section relates to the payment of educational expenses between an employer and a current or potential employee. It must be limited to actual costs, capped at 18 months after the employee’s start date, limit repayment to the pro rata portion of the remaining time of the 18-month period, and be waived if the employee leaves for good cause.
Penalties if an Employer Violates this Statute
HB 1155 allows for the attorney general or an individual to bring a civil cause of action to pursue any and all relief set out in this statute. Damages include those actual damages incurred by the individual, or a statutory penalty of $5,000, plus reasonable attorneys’ fees, expenses, and costs incurred in the proceeding.
In the last several years, Washington employers have experienced an influx of class actions arising out of recently passed or amended legislation. We expect that this amendment will generate more litigation.
Recommendations
Employers should start now and not wait until August 2027 to prepare for the October 1, 2027, compliance deadline. In preparation for compliance, employers should do the following:
- Identify, review, and modify all agreements that have non-compete and non-solicitation terms to ensure consistency with the law;
- Review bonus and retention agreements and modify any terms that require repayment or forfeiture if found to be competing with the employer;
- Cease entering into non-competition agreements;
- Prepare written notice and identify impacted current and former employees who should receive notice by October 1, 2027; and
- Consult with employment counsel for guidance on compliance with the law.
For questions or guidance on how HB 1155 may impact your organization, please reach out to your GRSM attorney, an author of this legal alert, or a member of GRSM’s Employment team.