Are Non-Competition Agreements Enforceable in Washington State?

New Law Coming January 1, 2020 - See Big Changes Coming to Washington State on Non-Competition Agreements.

Are non-compete agreements enforceable in Washington State is a question I get asked quite frequently, and here’s the answer:  Washington courts will enforce employee non-competition agreements if they are validly formed and are reasonable.  

​I know; not a satisfying answer, but a lot of what we lawyers do is analyze the “reasonableness” of a given situation or contract. Here’s a bit of case law to help you understand how lawyers and courts draft and review non-competition clauses in employment contracts:
  
"Generally, restrictive covenants in employment contracts are enforceable so long as the restrictions therein are "not greater than are reasonably necessary to protect the business or good will of the employer, even though they restrain the employee of his liberty to engage in a certain occupation or business, and deprive the public of the services, or restrain trade." . . .  In examining reasonableness, the court will look to the extent of the restriction, the length of time the restriction is in effect, and the geographic area covered. . . . The court in Racine employed a three-part test to determine if: 1) the restraint is necessary for the protection of the business or good will of the employer; 2) the restraint on the employee greater than is reasonably necessary; and 3) the degree of injury to the public from the loss of the service and skill of the employee is great enough to warrant nonenforcement of the covenant."  

So, when drafting your non-competition clause, the factors to keep in mind if you want your agreement to be enforceable are:

•  the extent of the restriction
• the length of time the restriction is in effect
• the geographic area covered.

   
In addition, each of these factors will be analyzed on a case-by-case basis with the following tests in mind:

• is the restraint is necessary for the protection of the business or good will of the employer?
• is the restraint on the employee greater than is reasonably necessary?
• the degree of injury to the public from the loss of the service and skill of the employee is great enough to warrant nonenforcement of the covenant. 

The Extent of the Restriction

This factor is poorly named and described. It should be described as “what is the restriction?  Here, the types of restrictions can run the full course of human imagination, but here are a few common ones:

• Restriction on working in your industry or related industries
• Restrictions on soliciting customers serviced by the employee
• Restriction on soliciting your company’s current customers

In Washington, you probably cannot restrict your company bookkeeper from working in the accounting industry, but you might be able to restrict your sales team from going to work for a direct competitor in your industry, and you an probably restrict your sales representatives from going to work for a competitor and soliciting sales from their former customers and clients of your business.
 
The Length of Time the Restriction is in Effect
  
In general, the longer the restriction lasts, the harder it will be to enforce in Washington. Having said that, it is common in Washington for courts to uphold employee non-competition clauses that run 12 months and in Racine, the court enforced a 36-month restriction on soliciting or performing services for former clients.
  
The Geographic Area Covered

This is an area where it is best to not over-reach when drafting the non-competition language.

If you only solicit or conduct business in the Bellingham to Seattle corridor, and the company has no plans of growing beyond that corridor, don’t restrict the employee from working for a competitor in the United States of America. In this situation, the court would likely find that the non-competition clause is not enforceable. You could have the same issue under this scenario if you attempt to restrict the employee from working for all competitors in the Pacific Northwest or the state of Washington.
  
Non-competition agreements are enforced on a case-by-case basis in Washington. Be sure to talk to your lawyer about these issues.

Contact Mark D. Walters