Effective January 1, 2022, the earning thresholds for employees and independent contractors in Washington who properly may be subject to noncompetition covenants will increase. The new adjusted earning threshold for employees will be $107,301.04 and the new adjusted earning threshold for independent contractors will be $268,252.59. Earnings is defined as the compensation reflected on box one of the form W-2 for employees or the payments reported on a form 1099 for independent contractors. Therefore, workers who earn amounts less than the new thresholds may not be subject to noncompetition covenants.

Currently, these earning threshold amounts are $101,390 for employees and $253,475 for independent contractors. The earning threshold amounts are adjusted annually for inflation by the Washington Department of Labor and Industries on September 30 of each year. The adjusted amounts are calculated based on the federal Bureau of Labor Statistics’ Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). This year, the increase was calculated at 5.38 percent in the CPI-W.

These earning thresholds stem from the 2019 law enacted in Washington imposing restrictions on the enforceability of noncompetition covenants with respect to individuals who earn less than a certain income amount. In addition to the earnings thresholds established by law, the law also established other restrictions on noncompetition agreements, including:

• A provision in a non-competition agreement signed by a Washington-based employee or independent contractor is void and unenforceable when the agreement requires the worker to adjudicate the agreement outside of Washington and when the agreement denies the worker protections established by the law.

• Franchisors may not prevent franchisees from hiring employees of the franchisor or other franchisees of the same franchisor.

• Employers are generally not permitted to prohibit employees earning less than twice the state minimum wage from having additional employment.

“Noncompetition covenant” includes every written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. A “noncompetition covenant” does not include: (a) a nonsolicitation agreement; (b) a confidentiality agreement; (c) a covenant prohibiting use or disclosure of trade secrets or inventions; (d) a covenant entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest; or (e) a covenant entered into by a franchisee. See RCW 49.62.020.

Washington employers should review all applicable noncompetition covenants and ensure that any worker, whether an employee or independent contractor, subject to such covenants meets the newly announced earning thresholds.

Christopher Shur, a Law Clerk – Admission Pending (not admitted to the practice of law) in the firm’s New York office, contributed to the preparation of this post.