We recently informed on the new Federal Trade Commission (FTC) rule that bans non-compete agreements across the U.S. Washington State is about to take things a step further and limit some types of non-solicitation provisions. While less dramatic than the FTC’s new rule, the new non-solicitation restrictions may have a bigger impact on a Washington company’s relationships with it employees and contractors.
What is a Non-Solicitation Provision?
A non-solicitation clause is often used in an employment contract between an employer and an employee. By the terms of the provision, the employee essentially agrees not to solicit the employer’s clients or customers, for the benefit of the employee or for the benefit of a competitor of the employer, after leaving the company.
While non-compete agreements have received substantial attention and regulation in Washington, non-solicitation agreements have historically been less scrutinized – until now.
What Are the New Restrictions?
Effective June 6, 2024, Washington is now banning certain types of non-solicitation provisions that essentially look like non-compete terms. More specifically, no longer can a non-solicitation provision prevent an ex-employee from accepting business with past, current, or prospective customers.
Please note that the state makes a distinction between accepting and solicitation. “Accepting business” has long been considered as a type of hidden non-compete, as it doesn’t restrict solicitation, but rather prevents actually doing business with a customer.
How to Protect Your Company With the New Rules
Understandably, many employers often care more about keeping workers from diverting away customers than actually keeping workers from seeking out another opportunity. With that in mind, below are some key points on ways to still protect your business:
- Washington still allows non-solicitation provisions that prohibit a former worker from soliciting business from “current” customers.
- Confidentiality provisions and trade secret protections are still fully enforceable. For example, the law does not address non-solicitation of prospective customers that you may have already been in discussions with, but that information necessary to make the solicitation may be protectable by solid confidentiality provisions.
- Reviewing your internal processes, confidentiality language, and identifying what you deem as confidential is now more important as this cover is necessary to protect customer names, contact information, pricing, methodologies, etc. Relying previously on non-solicit or non-compete terms will no longer suffice as a full strategy.
- Notably, prohibiting employees or contractors from soliciting other employees or contractors of your business are not impacted and can still be an important part of protecting your business from poaching of workers.
- Non-competes are still allowed in connection with the sale of a business, but it must be for at least one percent of the business. The FTC rule does not include specifics on the sale of the business exemption but requires it to be a “bona fide” sale of a business. Likely, the FTC rule is more stringent and will be limited to a more substantial sale than 1% of a business.
What Immediate Actions Should You Take?
We recommend reaching out to us so that we can review your current templates and make the necessary adjustments for future hires. For current workers, we can help craft a compliant communication to meet both FTC and Washington State’s new regulations.
Please contact us now if you are interested in a follow-up discussion and we will be happy to schedule a time to talk.
Questions?
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The attorneys at Foundry Law Group have years of experience in helping businesses manage and protect themselves from risks and concerns. Our team follows the latest developments affecting our clients’ operations, and we apply that knowledge as we build proactive strategies for long-term protection. We are always here to help so make sure to contact our talented team now!
