Washington Bans All Noncompetes and Takes a Swipe at TRAPs, Clawbacks, and Forfeitures

On March 23, 2026, Washington Governor Bob Ferguson signed Engrossed Substitute House Bill 1155 (ESHB 1155), implementing an extensive noncompetition prohibition in Washington State. Beginning June 30, 2027, all noncompetition covenants are void and unenforceable unless they fall under an exception to the law. Employers will no longer be able to enforce or rely on contractual provisions that restrict an employee or contractor from engaging in a lawful profession or business after leaving a position. 

Noncompete Ban

The new statute broadens the definition of a noncompetition covenant. The current statute applies to standard noncompetition clauses and any agreement that directly or indirectly prohibits the acceptance or transaction of business with customers. The new definition of “noncompetition covenant” adds any provision that “threatens, demands, requires or otherwise effectuates that an individual return, repay or forfeit any right, benefit or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.” 

Exceptions to the Noncompete Ban

Although the new law prohibits noncompetition covenants, several types of agreements are still permissible, provided they meet statutory limitations. These permitted agreements are:

• Nonsolicitation agreements expiring within 18 months of an employee’s termination of employment and prohibiting an employee, upon termination, from soliciting customers, prospective customers, patients and clients, to shift business away from the employer, if the employee has a direct relationship with the customer, patient or prospect through the employee’s work with the employer. Caveat: Any restriction on “accepting” business (even without solicitation) is treated as a prohibited noncompete, even if labeled a “nonsolicitation clause.”
• Confidentiality or nondisclosure agreements designed to protect proprietary information or trade secrets.
• Covenants entered into by a person purchasing or selling the goodwill of a business or otherwise acquiring or disposing of an ownership interest, but only if the person signing the covenant purchases, sells, acquires, or disposes of an ownership interest representing one percent or more of the business.
• Covenants entered into by a franchisee when the franchise sale complies with the Revised Code of Washington §19.100.020(1).
• Educational expense repayment agreements, but only if the repayment obligation ends within 18 months of hire, is prorated over that period, and is waived if the employee separates for a reason that qualifies as good cause under unemployment insurance standards.

Is it a TRAP?

The statute also takes an indirect swipe at training repayment agreement provisions (TRAPs), stay or pay provisions, and incentive clawbacks and forfeitures.

As already noted, the agreements voided by the statute include any provision that requires that an individual repay or forfeit any right or compensation as a consequence of engaging in a lawful profession, trade, or business. Any repayment, clawback, or forfeiture that is triggered by a departing employee’s competitive activities will be at substantial risk under this provision.

What about a repayment, clawback, or forfeiture that has nothing to do with whether the departing employee competes, but instead is triggered by any resignation before the employee has completed a specified period of employment? Such provisions are common for educational and relocation expense reimbursements, sign-on bonuses, retention bonuses, and equity grants. While these provisions may be challenged under the new law, there are strong arguments that they are excluded from its purview because they apply regardless of whether the departing employee engages in a lawful profession, trade, or business after leaving. A particular concern is presented by agreements to repay educational expenses. As noted, the statute provides an express safe harbor for such agreements if they meet specified limitations. Washington employers will be well advised to fit their educational reimbursement agreements into that safe harbor to avoid the argument that a provision that sails outside the harbor is void by implication. 

Written Notice to Employees Required

The law also imposes affirmative duties on employers. By October 1, 2027, employers must make “reasonable efforts” to provide written notice to all current and former workers or independent contractors who remain subject to any noncompetition covenant that the provision is “void and unenforceable.” Because the obligation extends to former employees, employers may need to review old records and agreements. In addition to prohibiting employers from entering into or attempting to enter into a noncompetition covenant with an employee or worker, the statute prohibits employers from enforcing, attempting to enforce, threatening to enforce, or representing that any person is bound by a noncompetition covenant. 

Private Right of Action

Individuals have a private right of action to seek damages, attorneys’ fees and costs for violation of provisions governing noncompetition covenants, moonlighting, or franchisors. Under the current law, a cause of action may not be brought regarding a noncompetition covenant signed prior to January 1, 2020, unless the noncompetition covenant is being enforced or explicitly leveraged. The new requirements apply to any legal proceedings initiated on or after June 30, 2027, regardless of when the cause of action arose. Matters already in progress before that date will continue under the legal standards applicable at the time they were filed.

Practice Guidance for Employers 

The practical implications for employers are significant. Companies will need to review existing employment agreements, offer letters, compensation plans, equity documents, and handbooks to identify and remove any language that qualifies as a noncompetition covenant under the expanded definition and applies to Washington employees. Onboarding and offboarding processes should be updated, and HR staff, managers, and recruiters should be trained to ensure that no suggestion is made that a noncompetition restriction applies. Going forward, employers may choose to rely more heavily on confidentiality protections, trade secret safeguards, and narrowly tailored nonsolicitation provisions to protect business interests within the boundaries of the new law. 

Legal challenges are expected to the law’s retroactive impact on existing contracts. Efforts to cancel or recover consideration paid under agreements rendered retroactively illegal by the statute are also anticipated. Employers whose existing agreements are affected by this law should consult knowledgeable legal counsel regarding their options.

The enactment of ESHB 1155 marks a major change in Washington’s employment landscape through movement from a system of regulation of noncompetition agreements to a complete ban. Employers that begin revising practices now will be better positioned to comply with the law and minimize risks when it becomes fully effective.