SB 5437 — Prohibiting noncompetition agreements and clarifying nonsolicitation agreements.

S-4455.1S-0453.1 SUBSTITUTE SENATE BILL 5437 State of Washington 69th Legislature 20262025 Regular Session By Senate Labor & Commerce (originally sponsored by Senators Stanford, Dhingra, Saldaña, Valdez, Riccelli, Conway, Frame, Hasegawa, Nobles, Ramos, and Shewmake)Shewmake READRead FIRSTfirst TIMEtime 02/02/26.01/22/25.

Referred to Committee on Labor & Commerce.

and repealing RCW 49.62.030, 49.62.040, and 49.44.190;49.44.190.

creating a new section;

and providing an effective date.

NEW SECTION.

(1) The legislature finds that noncompetition covenants hinder innovation and entrepreneurship, suppress wages, reduce job mobility, and ultimately harm consumers and the economy.

In 2019 the legislature took a critical step forward by banning the use of noncompetition covenants for lower-wage earners.

This did not go far enough.

Research shows that noncompetition covenants restrict workers' mobility, impede efforts to correct inequities, and significantly suppress workers' wages across all sectors, including for those not subject to covenants, or subject to covenants that are unenforceable under state law.

Even among supposed high-wage earners, the suggestion that these covenants are bargained is largely a legal fiction.

Noncompetition covenants are often unilaterally imposed by employers and businesses without meaningful negotiation.

Businesses have more specific and effective p.

1 SSB 5437 legal means to protect intellectual property, trade secrets, and clients without harming workers, contractors, and the public.

(2) The evidence is clear.

Banning noncompetition covenants will incentivize innovation and entrepreneurship, increase wages, and even reduce health care costs.

To that end, in 2024 the federal trade commission adopted rules banning noncompetition covenants nationwide.

Unfortunately, those rules have not been fully implemented.

Washington's workers and businesses should not have to wait years for federal court rulings on a nationwide ban when the state has the authority to extend these protections.

(3) The legislature hereby intends to ban noncompetition covenants for all Washington-based workers and businesses.

Yet the legislature recognizes the limitations of a state ban.

Workers in all jurisdictions need these same protections.

But other states may be slow to act or will not act despite compelling economic interests.

The state also does not intend for this act to modify or interfere with the sovereignty of tribal nations or with their exclusive jurisdiction to govern employment standards for employees working in Indian country for a business owned by a federally recognized tribe or tribal member.

By joining other states that have banned noncompetition covenants, Washington will demonstrate the benefits to other states, tribes, and jurisdictions.

Let the actions of this legislature to improve prosperity for all pave the way for the nation.

Sec.

2.

21 SSBSB 5437 Sec.

3.2.

32 SSBSB 5437 person signing the covenant purchases, sells, acquires, or disposes of an ownership interest representing one percent or more of the business;

4.3.

43 SSBSB 5437 (2) A court or arbitrator must presume that any noncompetition covenant with a duration exceeding eighteen months after termination of employment is unreasonable and unenforceable.

(2) It is a violation of this chapter for an employer to enforce, attempt to enforce, or threaten to enforce against an employee or worker any noncompetitionagreement covenant,prohibited by this chapter, to represent that the employee or worker is subject to aan noncompetitionagreement covenant,prohibited by this chapter, or to enter into or attempt to enter into aan noncompetitionagreement covenant with an employee or worker.worker that is prohibited by this chapter.

(3) By October 1, 2027,2025, an employer must provide to current employees, former employees, and independent contractors, who were required to enter into noncompetition covenants or whose contracts include noncompetition covenants, a written notice that the noncompetition covenant is void and unenforceable.

5.4.

54 SSBSB 5437 noncompetition covenant is not being enforced or explicitly leveraged.)) Sec.

6.5.

7.6.

((To this extent, this chapter applies retroactively, but in all other respects it applies prospectively.)) (2)A Legalcause proceedings commenced before the effective date of thisaction sectionmay willnot be governedbrought bybased thison chaptera asviolation amendedof RCW 49.62.020 prior to the effective date of this section.