As officials in the Biden administration scrutinize rules governing non-compete agreements across the country, it’s a good time to ask how their potential changes may affect Washington state’s recent overhaul of non-competes. The short answer is that Washington state protections of lower-wage workers will remain unchanged in the short-term regardless of any federal reforms because non-competes are regulated at the state level.
Nonetheless, the federal review may signal long-term changes to a type of contract that employers have long used to prevent their workers from leaving to work for a competitor or launch a competing business.
On July 9, 2021, President Biden issued Executive Order 14036, “Promoting Competition in the American Economy.” Among the 72 guidance to federal agencies carrying out the review of workforce rules was a request to “encourage” the Federal Trade Commission (FTC) to regulate non-compete agreements.
In a fact sheet, the White House explained that the purpose of the Executive Order was to make “it easier to change jobs and help raise wages by banning or limiting non-compete agreements and unnecessary, cumbersome occupational licensing requirements that impede economic mobility.” The White House described non-competes as “one way companies stifle competition” and stated that “roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.”
Washington is among a handful of states across the country that have already reined in non-competes for lower-wage workers in recent years. Since Jan. 1, 2020, Washington workers have enjoyed a range of new protections regarding these types of contracts. The key provisions of the “Washington Non-Compete Act” outlawed non-compete agreements for W-2 employees who earn less than $100,000 per year and independent contractors who make under $250,000 a year from the employer asking for the agreement.
Other protections in the Washington Non-Compete Act include the requirement that employers spell out the terms of any non-compete agreement in writing to prospective employees before a hire is made, and businesses that violate the law must pay the aggrieved worker a penalty of $5,000 or damages exceeding that amount, plus attorneys’ fees and related costs.
Click here to view the law’s other employee protections.
As JD Supra notes, while Executive Order 14036 hasn’t changed or invalidated existing non-compete agreements, observers should continue to monitor non-compete regulation at both the federal and state level.
If you work in Washington and have signed a non-compete agreement that may violate the state’s protections for lower-wage workers, contact Emery Reddy for a free consultation.