By / Brian Padgett • Partner, Employer Solutions Law
On January 1, 2020, RCW 49.62 took effect. This law governs the enforcement of employee or independent contractors’ non-compete agreements in Washington State. The legislature’s reasoning behind the need for this new set of requirements was that “workforce mobility is important to economic growth and development.” Additionally, there were several employers who were seen to abuse non-compete agreements for workers who were not paid enough and whose skillsets were not unique enough to justify the use of a non-compete agreement against them. Some examples included dog sitting businesses and sandwich shops paying minimum wage who were requiring their employees to sign these agreements as a condition of employment.
In response, the legislature established a minimum earnings threshold that must be met before a non-compete agreement can be enforceable. On January 1, 2021, a non-compete agreement is only enforceable if the employee subject to the non-compete agreement has annual earnings of at least $101,390.00. The amount is $253,475.00 for independent contractors.
However, simply paying an employee a base salary of $101,390.00 may not be enough for an employee to meet the minimum earning threshold for non-compete agreement enforcement. RCW 49.62.010 defines “earnings” as those earnings reflected in box one of the IRS W-2 form. Importantly for employers wishing to use and enforce a non-compete agreement, an employee’s annual salary is not necessarily the same amount that will be reflected in box one of the W-2. Box one does not include elective deferrals to retirement plans, pretax benefits, or payroll deductions. Depending on the amount of this compensation, an employee who at first may appear to meet the minimum earnings threshold for a non-compete agreement to be enforceable, may not have sufficient earnings for enforcement under the law.
Furthermore, if an employer attempts to enforce a non-compete agreement later deemed void and unenforceable, under RCW 49.62.080, that employer “must pay the aggrieved person the greater of his or her actual damages or a statutory penalty of five thousand dollars, plus reasonable attorneys’ fees, expenses, and costs incurred in the proceeding.” Depending on the complexity of the case, these costs could run in to six figures or more. For these reasons, it is extremely important for any employer contemplating the use or enforcement of a non-compete agreement to confirm that the employee or independent contractor subject to the agreement meets the necessary thresholds established under RCW 49.62.
Brian Padgett is a partner at Employer Solutions Law with his practice primarily focused on workplace safety and fighting DOSH/WISHA violations, workers’ compensation advocacy, employment law, and appearing before the Washington State Apprenticeship and Training Council. Before joining Employer Solutions Law, Brian worked for a national disability advocacy firm and a Washington State plaintiff’s injury firm where he handled workers’ compensation and disability cases. Brian lives in Maple Valley with his wife and 130 pound yellow lab Ziggy where he enjoys spending time with his friends and family—especially outdoors when the sun is shining! ■
