What Factors Determine Non-Compete Enforcement?
In business law, non-compete agreements are common tools used by employers to protect their interests, trade secrets, and workforce stability. These agreements prevent employees from engaging in activities that could harm the business after their employment ends.
However, the enforceability of non-compete clauses can be a tricky area of business law, where specific regulations govern application.
Here at Curiale Hostnik PLLC, we understand the need to consider various factors to determine whether a non-compete agreement is enforceable or void. Below, we’ll break down the primary elements that influence whether a non-compete agreement will hold up in Washington courts.
Reasonableness of the Agreement
One of the key factors in determining whether a non-compete agreement is enforceable is its reasonableness. Washington courts assess whether the restrictions outlined in the agreement are fair to both parties involved. Several components contribute to this evaluation:
Duration: How long the non-compete agreement lasts after the employment ends. Courts often see durations of one to two years as reasonable, but agreements lasting five years or more may face difficulties.
Geographic scope: The geographic area in which the employee is restricted from competing. The broader the region, the harder it is to justify. Courts may enforce non-competes that are limited to a specific region relevant to the business.
Scope of activities: The extent to which the employee is restricted from engaging in certain business activities. For instance, a blanket ban on working in any similar industry can be considered unreasonable. The agreement should limit only those activities that could directly harm the business.
In Washington, if a non-compete is overly broad or restrictive, it may be deemed unenforceable. Therefore, employers must be careful when drafting these agreements to verify that the restrictions are as narrow as necessary.
Legitimate Business Interest
Non-compete agreements are enforceable only if they protect legitimate business interests. These interests often include things like proprietary information, customer relationships, or trade secrets. Washington courts are reluctant to enforce non-competes if they appear to be overly restrictive just for the sake of limiting competition.
To prove that a non-compete is protecting a legitimate business interest, an employer must demonstrate the following:
Confidentiality: If the employee had access to sensitive information like proprietary methods, designs, or business strategies, the employer may have a case for enforcement.
Customer relationships: If the employee worked closely with specific clients or customers, a non-compete could be justified to protect these established relationships.
Investment in training: Non-competes may also be reasonable when an employer has invested significant resources in training an employee for a particular role, especially if that role gives the employee access to unique or specialized skills.
Without these elements, an employer may not have enough grounds to justify a non-compete agreement, making it harder to enforce in court.
Consideration for the Agreement
In Washington, as in most states, a non-compete agreement must be supported by “consideration” to be enforceable. Consideration refers to something of value that one party gives to the other in exchange for agreeing to the terms of the non-compete.
If an employee signs the agreement after starting employment without receiving anything of value in return, the agreement may be considered invalid.
Here are examples of valid considerations:
Initial employment: For a new hire, the promise of employment is often sufficient consideration. However, if an employee is asked to sign a non-compete after already being employed, the employer must offer additional compensation, a promotion, or other incentives.
Benefits or bonuses: If an employee receives a raise, bonus, or special benefit in exchange for signing a non-compete, that could be considered adequate consideration.
Courts closely review this aspect to determine whether the terms of the agreement are fair and whether both parties have agreed to something of value.
Public Policy Considerations
Washington courts also evaluate whether enforcing a non-compete agreement aligns with public policy. In particular, Washington has strong public policies supporting employee mobility, which influences how non-compete agreements are enforced.
Some key public policy considerations include:
Access to employment: Washington has an interest in making sure that individuals aren’t unjustly prevented from working in their field of expertise, especially if there is no real risk of harm to the employer.
Encouraging competition: Courts may strike down non-competes that seem to unreasonably hinder competition in an industry, especially if such agreements harm consumers by limiting choices or driving up costs.
Washington business law tends to lean toward protecting individual rights to work in their chosen profession. As a result, non-compete agreements are less likely to be enforced if they go against these broader public interests.
Employee’s Position and Role
The enforceability of a non-compete can also depend on the employee’s position within the company. High-level employees with access to confidential information, trade secrets, or key relationships are more likely to be subject to non-compete clauses that courts may enforce.
On the other hand, non-compete agreements for lower-level employees are much less likely to be enforced, as their roles typically don't involve the kinds of sensitive information that warrant protection. Courts tend to view non-competes for these employees as unnecessary and overly restrictive.
When determining enforceability, the courts look at:
Role in the company: Executives, senior managers, or other employees with significant decision-making power are more likely to be held to non-compete agreements.
Access to confidential information: Employees who have had access to proprietary information that could be used by competitors may be subject to stricter non-compete clauses.
Nature of employment: Employees working in highly specialized fields are more likely to face enforceable non-competes, while those in general or low-skill positions are less likely to have these agreements upheld.
Enforceability of Non-Compete in Washington State
In Washington, the law surrounding non-compete agreements is unique, with several statutes guiding the enforceability of these contracts. One major factor that can determine whether a non-compete will be enforced is whether the employee was given a written copy of the agreement.
Under Washington law, employees must receive a copy of the agreement before they start employment, or the agreement may be unenforceable.
Additionally, Washington courts have the authority to modify non-compete clauses that are deemed unreasonable. For instance, if a court finds that a non-compete is too broad, it may alter the terms to make them more reasonable instead of invalidating the entire agreement.
In some cases, Washington law permits the use of non-solicitation clauses as an alternative. These clauses prohibit former employees from contacting clients or colleagues but do not restrict them from working for a competing business. This approach tends to be more enforceable under Washington law.
How a Law Firm Can Help
If you’re an employer or employee in Washington dealing with a non-compete agreement, it’s essential to understand the factors that influence its enforceability. Given the challenges of business law in this area, having experienced legal counsel can help you work through the details of your situation.
Law firms regularly assist businesses in crafting fair and legally sound non-compete agreements that protect their interests while adhering to Washington’s business law standards. Whether you're looking to enforce a non-compete clause or need advice on negotiating an agreement, we can guide you through the process to achieve a positive outcome.
Contact Us Today
At Curiale Hostnik PLLC, we help employees who believe their non-compete agreement may be unfair or unenforceable. Our firm can assess the situation and offer the necessary legal support to protect your rights.
Contact us if you need assistance with non-compete enforcement or any other business law matter in Tacoma, Washington, as well as cities throughout Pierce County, including Puyallup, Gig Harbor, and University Place.