Is a Non-Compete Agreement Enforceable in Washington State

Is a non-compete agreementenforceable ?

A covenant not to compete is an agreement not to compete with a former business partner, employer, customer, vendor or any other party with whom you have a current business relationship. The purpose of a covenant not to compete is to ensure that the party with whom you are doing business does not use information, access or even experience he or she gained as a result of your business relationship to compete against you in the marketplace. Covenants not to compete typically last for the duration of the contract between the parties, plus a period of time after termination of the agreement.

In California and Texas, covenants not to compete are generally unenforceable, while non competition agreements are enforceable in the majority of states. The courts in both California and Texas have refused, as a matter of public policy, to give effect to choice of law provisions that choose the laws of states other than their own. What that means is that an employer operating nationally has a provision in its non competition agreement which states, for example, that Washington law governs the agreement cannot enforce the non-competition clause in California.The courts of California and Texas have refused to honor that choice-of-law provision and applies the law of their own states instead.

In Washington, the law related to covenants not to compete has changed sinceNovember 2004, when the Washington State Supreme Court concluded, in Labriola vs. Pollard Inc., that a non-compete agreement entered into after employment has commenced is valid only when there is independent consideration given at the time the agreement is reached. In this case, Labriola signed a non compete agreement when he was hired by Pollard in 1997, in which Pollard restricted Labriola from competing for certain customers for three years after his employment with Pollard ended. Subsequently, Pollard provided Labtiola another non-compete agreement in 2002, which was more restrictive requiring him to agree not to accept employment with any competitor for three years within 75 miles of Pollard`s business in Tacoma. The court found that the 2002 non-compete agreement lacked independent consideration and was not enforceable. This means that an employee must be given some benefit in exchange for foregoing his or her opportunities to compete with the employer. The types of consideration may include: an agreement to hire or promote an employee, a wage increase, a bonus, training or a fixed term of employment. In reaching its decision, the court stressed that independent consideration means both parties to a non compete agreement must each acquire additional obligations and benefits as a result of entering into the agreement. Furthermore, the concurring justicespointed out that the new non-compete agreement would be void as unreasonable even if there were adequate consideration, because it barred Labriola from working in his field of expertise under any circumstance. The justices stated that this post employment restraint was more restrictive than reasonably necessary to protect legitimate business interests.

Thus, it is critical for employers wishing to protect their business with non-competes in
Washington to give their employees independent consideration in a reasonable manner to the extent that one party performs some additional obligation while the other party gives something up. It is also important to be aware that a non-compete agreement entered into before employment has commenced is more likely to be found reasonable as the employer gives an employee the new employment opportunity and wages while the employee accepts a restriction on his or her activities in return.