Non-compete ban stirs optimism and uncertainty in Washington state — here’s what it means for tech

A new Washington law wiping out nearly all non-compete agreements across the state has startup advocates cheering and employers scrambling to figure out what comes next.

The law, signed March 23 by Gov. Bob Ferguson, voids existing agreements and prohibits new ones regardless of salary level or company size, with minimal exceptions. 

Set to take effect June 30, 2027, it’s the latest effort to restrict the use of non-compete deals. These clauses in employment agreements are often used to protect intellectual property and trade secrets, sometimes restricting job mobility and client relationships in the process.

Passed as House Bill 1155, the law has sparked debate across the state’s tech and business ecosystem. Supporters say it will unlock innovation and make it easier for startups to compete. Others argue the law goes too far, especially in its retroactive ban of agreements. 

Expanding on past reforms: Washington previously passed reforms in 2019 that limited non-competes to higher earners and capped them to 18 months. 

The new rules go further. Non-competes will only be enforceable if:

• They’re part of a business sale, and the person signing buys, sells, acquires or disposes of an ownership interest representing 1% or more of the business; or
• They’re part of out-of-pocket educational expense repayment that meet certain criteria. 

The ban is retroactive, meaning nearly all active non-competes will become void. The law also bans broad non-solicitation clauses that keep employees from working with any former clients, and caps approved non-solicitation agreements to 18 months.

What this means for employers: Employers must provide notice to those with active non-competes by October 1, 2027, with a noncompliance penalty of at least $5,000. It’s now a violation if an employer even attempts to enter a banned agreement.

The burden is on employers to determine who needs notice, and whether other agreements need compliance updates. Future violations — and potential lawsuits — could disproportionately impact companies with weaker human resources infrastructure, said Victor Menaldo, political science professor at the University of Washington, in an email to GeekWire.

A nationwide conversation: In 2023, the Federal Trade Commission issued a ban on non-competes, but a federal judge in Texas blocked it. 

At the time, the FTC estimated about 30 million people were bound by the clauses. The commission predicted employees would earn an additional $524 per year on average, and more than 8,500 new startups would launch each year once the new rules took effect.

However, the U.S. Chamber of Commerce argued banning non-competes would harm the economy and set a dangerous precedent for government micromanagement of private businesses.

Startup advocates see a win: Some startup leaders and investors in the Seattle region say the change is overdue, and non-competes have kept Seattle behind Silicon Valley.

“I’m thrilled,” said Chris DeVore, managing director of Founders Co‑op in Seattle and longtime non-compete critic, in an interview. “Washington is empowering individuals to pursue their own economic destiny without being thwarted.”

Washington-based tech giants like Amazon and Microsoft have used non-competes to keep employees from joining competitors or launching rival startups. In practice, DeVore and others argue they’re overused and often predatory, limiting job mobility and innovation. 

In 2022, Microsoft stopped using the clauses and removed them from most existing agreements, except for senior employees. Amazon’s aggressive non-compete enforcement has sparked criticism and a class action lawsuit in King County Superior Court, set for trial this year, pending the outcome of summary judgment motions filed by both sides. Amazon, and especially its cloud unit, has become less prone to file suit over non-competes recently.

“We don’t know how many startups never saw the light of day in Washington because a key employee decided not to build a competitor,” said longtime tech and startup leader Marcelo Calbucci, founder of Seattle Flow.

California’s more than 100-year ban on non-competes is cited as a key ingredient in Silicon Valley’s rise. A 2010 Rutgers study has backed up that theory, linking weaker non-compete enforcement to higher rates of innovation, patenting and startup activity.

Businesses may shift their approach: Meanwhile, critics say employers may rely more heavily on confidentiality agreements, non-solicitation clauses and other restrictions that are harder to regulate. 

“Employers who previously used targeted, time-limited noncompetes for senior employees may now respond with sweeping NDAs that cover far more employees and far more information,”  said Menaldo, the political science professor. 

In addition, Menaldo said, retroactively banning agreements undermines “the assurance that contracts entered into today will be enforceable tomorrow.”

Will the new law boost Seattle’s startup community? The answer to that question is not clear. Startups may find it easier to recruit talent. Employees may gain more freedom to switch jobs or launch companies. But businesses will also adapt, potentially introducing new constraints and legal strategies.

Stephen C. Willey, director of business litigation at Fennemore Law in Seattle, projects the law’s overall impact on Washington’s tech industry and economy will be minimal. 

“I don’t think it’s going to actually have a huge impact in terms of businesses here or innovation,” he said. “They’re probably overestimating the impact.”

Legal challenges: The biggest immediate impact may be felt in the courts. Observers expect a surge in litigation before the law takes effect, as companies navigate the law’s complex requirements and employees try to resolve disputes under the current rules.

The outcome of these cases will shape how aggressively the law is enforced, or whether parts of it are scaled back.