The Washington Legislature has approved Engrossed Substitute House Bill 1155 (ESHB 1155), a sweeping measure that would eliminate nearly all non-competition covenants for employees and independent contractors. The bill, passed on March 9, now awaits the signature of Washington Governor Bob Ferguson, who is expected to sign it. If enacted, ESHB 1155 will take effect on June 30, 2027.
Legislative Findings and Policy Direction
Lawmakers ground the bill in their belief that noncompetition covenants have adverse economic and social impacts, including reduced innovation and entrepreneurship, suppressed wages, and restricted worker mobility. The findings emphasize that Washington’s 2019 wage threshold reforms did not sufficiently curb overuse of non-competition provisions and note the Federal Trade Commission’s (FTC’s) unsuccessful attempt to impose a nationwide ban as a reason for state-level action.
Comprehensive Ban on Noncompetition Covenants
ESHB 1155 would render all non-competition covenants void and unenforceable beginning June 30, 2027, regardless of when the agreements were signed. Furthermore, the bill prohibits employers from enforcing, attempting to enforce, threatening to enforce, or entering into any non-competition covenant with any employee or independent contractor.
Expanded Definition of “Noncompetition Covenant”
The legislation significantly expands the definition of prohibited non-competition covenants to include:
- Restrictions on performers
- Clauses prohibiting an employee or contractor from accepting or transacting business with customers
- Provisions requiring repayment or forfeiture of compensation triggered by competitive conduct.
Limited Carve-Outs
The bill also contains several narrow exceptions, including:
- Customer non-solicitation agreements, limited to active solicitation only and capped at 18 months post-employment
- Confidentiality agreements prohibiting the use or disclosure of trade secrets
- Covenants in the purchase or sale of goodwill of a business, or in acquiring or disposing of an ownership interest, but only when the individual buying or selling holds more than one percent of the business
- Covenants entered into by a franchisee when the franchise sale complies with Washington law (RCW 19.100.020(1))
- Agreements to repay out-of-pocket educational expenses, if it meets strict statutory requirements
Employer Notice Requirements
Employers must make reasonable efforts to provide written notice to all current and former employees and independent contractors, whose non-compete agreements would otherwise remain in effect, informing them that the covenants are void and unenforceable. The notices must be delivered no later than October 1, 2027.
Enforcement and Penalties
Both the attorney general and aggrieved individuals may bring actions for violations of this bill. Employers face liability for the greater of actual damages or a $5,000 statutory penalty, plus reasonable attorneys’ fees. These remedies apply to enforcement attempts threats of enforcement, and misrepresentations about enforceability.
Retroactivity and Pending Cases
The amended provisions would apply to all legal proceedings initiated on or after June 30, 2027, regardless of when the agreement was signed. Legal actions already pending as of that date would continue under prior law.
What Employers Should Do
If the Governor signs the bill as expected, ESHB 1155 will significantly reshape Washington’s restrictive covenant landscape, prioritizing their view that it will increase worker mobility, wage growth, and economic flexibility. Employers should review their agreements, assess compliance obligations, and plan for the statute’s anticipated implementation.
