Labor & Employment Law Daily Wrap Up, STATE-LAW CLAIMS—Wash. Sup. Ct.: Employees revive claim that noncompete agreement contained unreasonable restrictions, (Jan 24, 2025)

By Todd Harrison, J.D.

With few exceptions, employers who pay their employees less than twice the minimum wage cannot prohibit them from working second jobs.

Reversing a lower court’s grant of summary judgment against the claims of two low-paid employees who alleged that their noncompete agreement violated state law, the Washington Supreme Court determined that the legislature had expressly directed that protections for employees were to be liberally construed and that any exception for the common-law duty of loyalty was to be narrowly confined. Given this clear stated intent, the court held that employers may impose prohibitions that are consistent with the duty of loyalty only when those prohibitions are reasonable in light of the facts and when specific provisions within the agreement are consistent with the legislature’s directive. Accordingly, the matter was remanded for further proceedings as to the reasonableness of the agreement (David v. Freedom Vans LLC, No. 102566-1 (Wash. Sup. Ct. Jan. 23, 2025)).

The employer in this case is a company that converts and customizes vans into mobile homes. The two employees who brought this case were employed as a shop assistant and an electrician, respectively. Neither ever made more than twice the minimum wage during the course of their employment, which ended in 2021.

Noncompete. All employees of the company were required to sign a noncompete agreement that prohibited employees from “directly or indirectly engag[ing] in any business that competes” with the company. According to the employees, they declined offers to take on additional work building or repairing vehicles for fear that they would lose their jobs and face the threat of legal action.

Lawsuit. After their employment ended, the employees individually and on behalf of a class of similarly situated individuals filed a class action lawsuit against the employer alleging that the noncompete agreement violated chapter 49.62 RCW—a statute that regulates noncompete clauses in employment contracts.

The superior court granted summary judgment to the employer, reasoning that “RCW 49.62 does not restrict an employer’s right to require employee loyalty and avoidance of conflicts of interest during the course of employment consistent with the common law” in an express or implied manner. The Court of Appeals affirmed, providing an alternate basis for its holding, explaining that even if the noncompete is a policy that is broader than the common-law duty of loyalty, the policy advances the same objective as the duty by restricting employees from competing with their original employer “in any capacity.” This appeal to the state high court followed.

Legislative guidance. RCW 49.62 was enacted in 2019 to promote workforce mobility and to safeguard employees from unfair practices. The legislature expressly provided that “[t]he provisions in this chapter facilitating workforce mobility and protecting employees and independent contractors need to be liberally construed and exceptions narrowly construed.” In enacting the law, the legislature found that noncompete agreements that limit competition or hiring may be unreasonable.

At issue in this case was the statute’s provision that governs an employer’s authority to restrict low-wage workers from obtaining additional employment. “[A]n employer may not restrict, restrain, or prohibit an employee earning less than twice the applicable state minimum hourly wage from having an additional job, supplementing their income by working for another employer, working as an independent contractor, or being self-employed.” RCW 49.62.070(1). Because this provision protects employees and facilitates’ workplace mobility, the court determined that it must be liberally construed.

However, the statute also contains an exception: “[t]his section does not alter the obligations of an employee to an employer under existing law, including the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies addressing such obligations.” RCW 49.62.070(2)(b). As an exception to the rule, the court determined that this provision must be narrowly construed.

Duty of loyalty. Noting that this was a case of first impression, the court explained that it was tasked with interpreting the common-law duty of loyalty within the context of the statute. The employer argued that current employees should not be able to provide any kind of assistance to another Washington company specializing in convertible vans, regardless of job duties.

Declining to adopt this expansive view of the duty of loyalty, the court observed that doing so would render the employee protections found in the statute meaningless and would require the court to ignore the directive to interpret exceptions narrowly.

“A narrow construction of the common law exception is also consistent with the economic realities animating the legislature’s objective to facilitate workforce mobility, as many low wage workers must work multiple jobs to provide for themselves and their families,” said the court. As such, it reversed the Court of Appeals and held that barring employees from providing any kind of assistance to competitors exceeded a narrow construction of the duty of loyalty, contrary to the legislature’s intent to protect low-wage employees.

Reasonableness standard. This holding did not, as the employer suggested, eliminate the common-law duty of loyalty. While the statute provides that noncompete agreements are subject to existing law, including the common law, the common law provides noncompete agreements are subject to a reasonableness standard, explained the court.

Employers, continued the court, may impose some prohibitions that are consistent with the duty of loyalty, so long as those prohibitions are reasonable in light of the facts and specific provisions within the noncompete agreement, and must be consistent with the legislature’s stated requirement that the duty of loyalty is to be narrowly construed. Accordingly, the matter was remanded to the superior court to determine whether the noncompete was reasonable under the facts of this case.

The case is No. 102566-1.

Judge: Montoya-Lewis, R.

Attorneys: Timothy W. Emery (Emery Reddy) for Jeremy David. Jeffrey P. Fairchild (Faber Fairchild McCurdy) for Freedom Vans LLC.

Companies: Freedom Vans LLC

Cases: StateLawClaims ClassActions ContractClaims WashingtonNews GCNNews