U.S. - Washington
2019.06.06 "Washington Law Limits Enforceability of Noncompete Clauses" - This Holland & Knight alert begins as follows: "Washington Gov. Jay Inslee recently signed House Bill 1450, which limits the enforceability of noncompete clauses in written and oral employment contracts between employers on one hand and employees and independent contractors on the other. The new law also imposes penalties upon employers who seek to enforce an unenforceable noncompete clause after Jan. 1, 2020."
2019.05.13 "Non-Competes in Washington - Over-Reaching Could Cost Employers" (alert from Proskauer).
2017.09.17 RSU Award Locked-in Restrictive Covenants. To quote from Law360's summary of Tyco Integrated Security, LLC et al v. Bradford (D.Wash):
- A Washington federal judge on Wednesday sided with Tyco Integrated Security LLC in finding its former director of regional sales breached his employment agreement by taking a job as vice president of sales at a competing electronic security company.
- In an order granting Tyco partial summary judgment, U.S. District Judge Thomas S. Zilly decided against challenging John Bradford's employment with rival business G4S Secure Integration LLC, but issued an order preventing him from soliciting former employees or exposing trade secrets.
- In November 2013, Bradford accepted an RSU Award Agreement with Tyco International Ltd., Tyco’s predecessor, which contained within it various restrictive agreements, including a non-disclosure, non-competition and non-solicitation of customers and employees, the order said.
- In accepting those covenants, the order said, Bradford agreed he would never “disclose confidential or proprietary information or trade secrets related to any business of [Tyco] or the subsidiary”, nor would he take up employment with a competitor for one year following an exit from the company.
2013.Jan.3 Defusing Non-competes through Smarter On-boarding
Amazon and Google recently squared off in a non-compete dispute in which Amazon prevailed in asserting Washington law controlled over California law, thereby leading to injunctive relief to enforce non-solicitation obligations against a former executive. Nevertheless, the limited scope of the relief and its duration - less than three months - reflects a judicial balancing that gives less impact to Amazon's noncompete than to Google's on-boarding of the executive. Those who hire executives are finding success when they incorporate confidentiality and loyalty restrictions drawn reasonably from those that the former employer imposed. For example, see the following quote from the Amazon v. Powers decision:
- Google has already forbidden him to ever use Amazon’s confidential information. Amazon’s counsel conceded at oral argument that Amazon has no evidence that Mr. Powers has disclosed anything in the nearly three months since he began working at Google. Once Google lifts its self-imposed restrictions on Mr. Powers’ work with its cloud computing products, Mr. Powers may have more opportunity to use what he knows about Amazon. It is that possibility that garners much of Amazon’s attention. Amazon has generally failed to point to anything specific that Mr. Powers knows that he is likely to disclose at Google. [PDF page 11]
- In the context of this limited injunction, the balance of hardships favors Amazon. Before Amazon even learned of Mr. Powers’ work at Google, Google was willing to keep Mr. Powers from cloud computing work until six months after he began working at Google. That self-imposed restriction would have expired in late March 2013. Given that Google was willing to impose that restriction and Mr. Powers was willing to accept it, the court finds no hardship to Mr. Powers in enforcing the Agreement’s more limited customer-based restrictions until March 19, 2013, nine months after Mr. Powers’ last had access to Amazon information. [PDF pages 20-21]
- As the limited relief granted in Amazon v. Powers illustrates (copy available by email to Mark), a new employer may successfully narrow the scope and duration of the prior employer's restrictions. This on-boarding strategy by a new employer pressures the former employer to present more convincing proof that its noncompete and trade secret restrictions are not overly-broad for the protection of its legitimate business interests. See this quote from Amazon v Powers:
- Amazon has not explained why it selected an 18-month period, nor has it disputed Mr. Powers’ suggestion that the Agreement he signed is a ‘form’ agreement that Amazon requires virtually every employee to sign. Because Amazon makes no effort to tailor the duration of its competitive restrictions to individual employees, the court is not inclined to defer to its one-size-fits-all contractual choices.
Compare IBM v. Visentin (discussed at New York law). All of this is another reminder that employers should customize their protective covenants at the front end, so that the restrictions are drawn in a manner that is both reasonable and defensible if enforcement proceedings later arise.
Washington Law Generally.
The following quotations from Amazon v. Powers set forth controlling Washington case law re non-competes:
- For now, the court applies Washington law, under which a court deciding whether a noncompetition agreement is reasonable must consider three factors: (1) whether restraint is necessary for the protection of the business or goodwill of the employer, (2) whether it imposes upon the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill, and (3) whether the degree of injury to the public is such loss of the service and skill of the employee as to warrant nonenforcement of the covenant. Perry v. Moran, 748 P.2d 224, 228 (Wash. 1987).
- If a court finds a restraint unreasonable, it can modify the agreement by enforcing it only “to the extent reasonably possible to accomplish the contract’s purpose.” Emerick v. Cardiac Study Ctr., Inc., 286 P.3d 689, 692 (Wash. Ct. App. 2012). Among other things, the court can reduce the duration of an unreasonably long anticompetitive restriction. See, e.g., Perry, 748 P.2d at 231 (“It may be that a clause forbidding service [to former clients] for a 5-year period is unreasonable as a matter of law . . . .”); Armstrong v. Taco Time Int’l, Inc., 635 P.2d 1114, 1118-19 (Wash. Ct. App. 1981) (cutting five-year restriction to two and a half years).
- In any case, the court should protect an employer’s business only “as warranted by the nature of [the] employment.” Emerick, 286 P.3d at 692.
- Applying these principles, Washington courts have typically looked favorably on restrictions against working with an employee’s former clients or customers.
- Washington courts have been more circumspect when considering restrictions that would prevent an employee from taking on any competitive employment. These general restrictions on competition are more suspect than mere bans on working with former clients or customers. Perry 748 P.2d at 230.
- Courts will in some circumstances enforce general noncompetition restrictions when they apply only in a limited geographical area. See, e.g. Emerick, 286 P.3d at 693-95 (remanding for reconsideration of necessity of fiveyear ban on competitive employment in a single county); Hometask Handyman Servs., Inc. v. Cooper, No. C07-1282RSL, 2007 U.S. Dist. LEXIS 84708, at *10-11 (W.D. Wash. Oct. 30, 2007) (granting injunction against former franchisee based on general competition restriction, but reducing area from 100-mile radius to 25-mile radius); see also Labor Ready, 149 F. Supp. 2d at 408 (N.D. Ill. 2001) (upholding one-year general bar on competition within 10-mile radius of former employer).
- Courts have also declined to enforce even geographically limited general restrictions on competition. See A Place for Mom, Inc. v. Leonhardt, No. C06-457P, 2006 U.S. Dist. LEXIS 58990.