Does Washington’s law against non-compete agreements apply to stockholders?
Seattle Business Lawyer
Non-compete agreements between employers and employees are prohibited in Washington except under certain earning thresholds. These thresholds are established in RCW 49.62.020 (for employees) and RCW 49.62.030 (for independent contractors).
- Employees – must earn more than $100,000
- Contractors – must earn more than $250,000
However, unlike in other jurisdictions that have prohibited non-compete agreements more broadly (California), Washington law permits non-compete agreements when related to purchasing or divesting an ownership interest. RCW 49.62 clarifies:
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 when the franchise sale complies with RCW 19.100.020(1).
This means that when you create your startup, you and your co-founders can be asked to agree to a non-compete. You may also be asked to sign a non-compete by your former partners when selling your share in a business. A number of “do it yourself” forms online are based on California law and won’t include this language. It’s a good reason to ensure you engage with legal counsel when structuring your business.
You can learn more about our startup formation packages here.
Find out more about our founder and how he can assist you in being prepared for an ever-changing business landscape.