On Wednesday, May 8th, Governor Jay Inslee helped level the playing field for workers in Washington state by signing ESHB 145. This new Washington non-compete law will restrict employers’ use of contractual restrictive covenants. The legal changes, which go into effect January 1,2020, will affect veterinarians and veterinary staff throughout the state.
Non-competition Clauses Can Impair Economic Growth
Non-compete clauses limit how close to an existing business a previous employee can work doing specific activities for a certain amount of time. These contractual agreements are used to protect employers. Employers may hire a job candidate from out of state and have significant costs with moving expenses, training, and other start-up costs. If employees can leave and open a competing service quickly, it can financially strain employers.
Non-compete clauses limit not just the formation of competing businesses but also limit an employee’s ability to change jobs. When non-compete clauses are lengthy or cover large geographic areas, employees may have to move cities or states in order to leave an unhappy workplace. In industries where many workers have non-compete clauses in their contracts, it can be extremely hard for new businesses to hire employees.
In passing the new legislation, Washington stated its belief that employee job mobility is important for economic growth and development. The new law is an acknowledgment that the status quo is unreasonable and provides unfair advantage to existing businesses.
Lessons from California
Non-compete clauses are virtually unenforceable in California. Many believe that the technology industry has flourished in Silicon Valley in part because workers can easily leave existing companies to start new ventures. For example, successful video conferencing start-up, Zoom began when Eric Yuan left his job at WebEx. The hope is that the new Washington non-compete law limiting these clauses will increase the formation of new businesses and encourage more innovation.
The Impact on Washington Veterinarians
I believe this law is a huge positive for veterinarians. In an increasing consolidated landscape, non-compete clauses have become longer and now cover larger geographic areas. When I started work in Seattle, I did not have a non-compete clause in my contract. In my second job, the non-compete clause only covered a 5-mile radius. As a business owner, I did believe in non-compete clauses due to the start-up costs for new specialists but we tried to make them reasonable. I now know of veterinarians with 3-year, 50 mile non-compete clauses. These burdensome non-competes have caused talented veterinary specialists to leave the Seattle area when they chose to leave their workplaces. These non-competes have deprived pet owners of important specialty services.
The new law limits these non-competes, making it easier for veterinarians to change jobs or start new hospitals. Increased competition will improve the quality and price of veterinary care for pets and their families.
Details of the New Washington Non-Compete Law
The new law states that non-compete clauses are only allowed for employees making over $100,000/year and this number will be adjusted each year for inflation. The law affects both existing non-competes and future non-competes. If you are a veterinarian or veterinary staff currently working in Washington state and you make under $100,000, any non-compete you signed is likely null and void after January 1, 2020 and can not be enforced. Any contract presented after January 1, 2020 can not contain non-compete language if your W-2 earnings are less than $100,000.
For those workers making over $100,000, non-compete clauses are limited to 18 months. Again, the new law applies to both new employee contracts and also to any contracts that existed prior to January 1, 2020. Thus, if you are a veterinarian in Washington, and signed a 2 or 3 year non-compete, after January 1, 2020, the total length of your non-compete is limited to 18 months.
Other Important Provisions of the Law
1) The law applies to employees in Washington, no matter where the corporate headquarters of their employer is located.
2) Employers MUST notify employees IN WRITING of any non-compete provisions before job acceptance
3) If an existing employee is asked to sign a new non-compete provision, they must be provided “new independent consideration,” which might be additional compensation, new benefits, or a promotion.
4) If an employee is laid off due to downsizing or a merger, all non-compete clauses are void unless the employer provides compensation that is the same as the employee’s base pay at the time of termination for the length of the non-compete.
5) Employees cannot be restricted from moonlighting if they make less than twice the state’s minimum wage.
6) The law does NOT limit non-solicitation provisions, protection of trade secrets, or other confidentiality provisions
7) The law does NOT apply to non-compete provisions signed as part of the sale of a business.
More Information and Caveats
While I hope this information is helpful, I am not an attorney. If you have signed a contract with a non-compete clause that you believe will be invalidated by the new legislation, I would strongly recommend consulting with an attorney in Washington before any job changes.
More information on the law can be found at the National Law Review and in this piece by the Employment Group at Davis, Wright, Tremaine.
Full text of the legislation can be found here.
1 comment
I am so glad to see this new law. I know of many veterinarians who had to pick up and leave the area and the state due to these restrictive noncompete contracts. It will also be interesting to see our industry sales people that have signed non-competes and how this will impact them as well.