New bipartisan bill would limit noncompete terms

Legislators say limiting these types of agreements would protect innovation and champion workers’ rights

Bipartisan bill
Courtesy of Joe Adamack. SB 6522, sponsored by Marko Liias and Joe Fain, would greatly restrict the ability of companies to enter into noncompetition agreements.

Noncompetition agreements are often seen as helping big companies at the expense of employees and innovators – but a new bipartisan bill in the Washington Legislature could change that.

The bill, SB 6522, sponsored by Marko Liias, D-Lynnwood, and Joe Fain, R-Auburn, would greatly restrict the ability of companies to enter into noncompetition agreements, which forbid employees from working in a similar field for a set amount of time. The goal of the legislation is to protect innovation and workers’ rights by giving them more mobility and freedom, said Liias.

“In the technology space, the concern I have is around competitiveness,” Liias said. “We want to create a startup culture. If big companies stop people from moving around or starting new businesses, that hurts innovation.”

There are two groups that are most impacted by noncompetition agreements: High tech workers in areas like software, biotech and manufacturing and low wage workers who work at fast food restaurants, grocery stores and retail, Liias said.

For high tech workers, agreements are often made to protect intellectual property. And in cases where a worker’s knowledge is integral to a company’s ability to function, Liias said he still thinks the agreements have a function.

“I think it’s still appropriate for really high wage workers,” Liias said.

But that’s the top end of the employment spectrum. Lower level workers in technology fields may have their own innovative ideas to pursue, and the agreements can stifle them from launching new companies of their own, he said.

“I think it definitely has a slowing effect on the economy,” Liias said. “As an innovation leader, we want talent to go where it needs to go.”

The bill would disallow future noncompete agreements on the tech side for workers making less than five times the state’s average weekly wage – which is about $280,000 annually.

It also requires employers to disclose non-competition agreements before a job offer is accepted, rather than after, when an employee is already locked in, which has been a problem, Liias said.

In 2016, the Department of Treasury found 18 percent of American workers were covered by a noncompetition agreement. At least 37 percent of those workers were asked to sign only after they accepted a job offer.

“Workers need to be able to go in eyes wide open with what their employment agreement will be,” Liias said.

The situation surrounding noncompetition agreements is a little more predatory on low wage employees than it is in the high tech sector, he added.

“For low wage workers, this is a basic fairness issue,” Liias said.

In fast food, grocery and other industries, noncompete agreements are often used to prevent competing businesses from getting workers. But those jobs often don’t provide 40 hours of work a week to employees, and the agreements limit the ability of low wage employees to get second jobs or support themselves, Liias said.

“I see why businesses like these agreements, but from a point of the overall economy, we want talent to be able to flow freely,” Liias said.

The bill would set new rules for low wage workers so employers can’t enter into noncompete agreements that restrict, restrain or prohibit workers with fewer than 40 hours a week or those that earn less than 200 percent of the state or local minimum wage.

And to be enforceable a noncompetition agreement must be supported with a “garden leave clause” in which the employer agrees to continue to pay the employee’s wages during the restricted period.

“It’s possible to protect the unique and certain interests of companies and their ability to bring products to market, without stifling innovation and opportunity,” Fain said of the bill in a news release. “This legislation is a starting place to find the sweet spot between legitimate things that a company should have a right to protect, and the one-size fits all agreements that hurt competition in the workforce.”

The bill was scheduled for executive session in the Senate Committee on Labor & Commerce on Jan. 31, after this article was filed.

Liias said the bill has good bipartisan support, but he’s not sure if it will make it in this year’s short 60-day session. If not, he will introduce it again in the long session next year.

“I think some elements have pretty broad support,” Liias said. “Some of the details, though, I’m still working through with my colleagues.”