Governor Signs Washington’s New Noncompete Law: What Employers Should Know—And How To Prepare

Washington yesterday adopted a major shift in its approach to employee restrictive covenants. Engrossed Substitute House Bill 1155 (ESHB 1155), approved by the Legislature in March 2026 and signed by the Governor yesterday, eliminates the use of noncompetition agreements in employment and independent contractor relationships beginning June 30, 2027 in specified situations including notices to existing agreement holders by October 1, 2027.

For employers with operations or employees in Washington, the law will require planning and careful contract review—but it does not leave businesses without tools to protect legitimate business interests.

A Shift from “Limited Use” to Near‑Prohibition

Since 2020, Washington has regulated noncompete agreements through income thresholds and reasonableness requirements. Those rules permitted noncompetes for higher‑earning employees if specific statutory conditions were met.

ESHB 1155 replaces that framework with a far more restrictive model. The new law voids nearly all noncompetition agreements, regardless of employee compensation level, job title, or industry. After the effective date, employers may not enter into new noncompetes, attempt to enforce existing ones, or represent that workers remain subject to them.

In practical terms, noncompetes will cease to be a viable post‑employment restriction in Washington outside of narrow sale‑of‑business situations.

Broad Definition of Prohibited “Noncompetition Covenants”

ESHB 1155 expands the definition of what constitutes a noncompetition covenant. The law goes beyond traditional clauses that explicitly prohibit working for competitors.

Under the new statute, prohibited provisions include agreements that:

• Restrict a worker from engaging in an otherwise lawful profession or business
• Prevent a former employee from accepting or transacting business with customers
• Require workers to repay, forfeit, or lose compensation because they choose to compete after leaving
• Function as indirect deterrents to post‑employment competition, even if not labeled as a “noncompete”

This expansion reflects legislative intent to prevent employers from using alternative contractual mechanisms that, in effect, limit employee mobility.

What Employers Can Still Use

Although the law significantly limits noncompetition agreements, it preserves several important tools for employers.

1. Nonsolicitation Agreements (Narrowly Defined)

Customer and employee nonsolicitation agreements remain permissible, but only if carefully drafted. To be enforceable:

• Restrictions must focus on active solicitation, not the acceptance of unsolicited business
• Customer restrictions are limited to individuals or businesses with whom the worker had a meaningful, work‑related relationship
• The restriction may not last more than 18 months following separation

Agreements that go further—such as barring business dealings altogether—risk being deemed unenforceable.

2. Confidentiality and Trade Secret Protections

The law does not affect an employer’s ability to protect confidential information, proprietary data, or trade secrets. Properly drafted confidentiality agreements, coupled with strong internal data‑protection practices, will become even more important as noncompetes fade out.

3. Sale‑of‑Business Noncompetes

Noncompetes connected to the sale or acquisition of a business remain enforceable when the individual restricted by the covenant holds at least a 1% ownership interest. This exception preserves a well‑accepted exception in commercial transactions.

4. Limited Training Cost Repayment Agreements

Agreements requiring repayment of bona fide, out‑of‑pocket educational expenses are still allowed—but only if they meet strict statutory conditions related to duration, proportionality, and the circumstances of separation.

Retroactive Effect and Notice Considerations

Importantly, the law applies retroactively. Previously signed noncompete agreements will become unenforceable as of June 30, 2027.

Employers must also make reasonable efforts to inform affected workers that noncompete provisions are no longer valid by October 1, 2027. Failing to update outdated agreements or continuing to reference void restrictions may expose employers to liability.

Practical Impact on Employers

While ESHB 1155 limits one traditional tool for protecting competitive interests, it does not alter the fundamental employer‑employee relationship. However, it does accelerate a broader shift in employment law strategy.

Employers should anticipate:

• Reduced ability to rely on post‑employment restrictions to retain talent
• Greater scrutiny of incentive, bonus, and equity arrangements tied to post‑separation conduct
• Increased emphasis on retention, engagement, and workforce planning
• Heightened importance of onboarding, off‑boarding, and trade secret protocols

Employers that begin adjusting early will be best positioned to adapt smoothly.

Steps Employers Should Take Now

Although the law does not take effect until mid‑2027, employers benefit from planning well in advance. Recommended steps include:

1. Review existing agreements containing noncompete, repayment, or broad nonsolicitation language
2. Review template employment, equity, and bonus agreements for compliance with the new definition of noncompetition covenants
3. Strengthen confidentiality and trade secret protections through policy and practice
4. Train HR and management teams on permissible and impermissible restrictions and enforcement proceedings.
5. Develop retention‑focused strategies that align with a more mobile workforce

Takeaway

ESHB 1155 represents a clear policy choice by Washington lawmakers to prioritize employee mobility and economic flexibility. For employers, the law requires adjustment and creative thinking about protecting intellectual capital and customer relationships. With thoughtful contract design, strong information‑protection practices, and forward‑looking talent strategies, businesses can continue to compete effectively in Washington’s evolving legal landscape.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.