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Employment Alert: Non-Compete Agreement Earnings Threshold Increases January 1, 2021

Published on November 25, 2020

Effective January 1, 2021, the threshold for non-compete agreements to be enforceable in Washington State will increase to $101,390.00 for employees and $253,475.00 for independent contractors.

Washington’s new law regarding non-compete agreements, RCW 49.62, went into effect on January 1, 2020. Under this new law, non-compete agreements are enforceable only if certain conditions are met.

One of those conditions concerns the employee’s annual minimum earnings. The Department of Labor and Industries recently updated the annual minimum earnings amounts for 2021. Under these updates, a non-compete agreement is enforceable only if the employee’s annual earnings exceed $101,390.00, or $253,475.00 if an independent contractor.

Employers should be aware of the method used to calculate an employee’s annual earnings. For the purposes of enforcing a non-compete agreement, an employee’s earnings are calculated not by their yearly salary as stated in an offer letter or employment contract, but instead by the figure in box 1 of the employee’s Form W-2. Because some compensation is not included in box 1 of the W-2, such as earnings deferred into a retirement plan, the figure in box 1 may appear lower than the employee’s annual salary, making a non-compete agreement unenforceable.

Please contact any member of Ryan Swanson’s Employment Rights, Benefits Labor Group if you have questions about your non-compete agreements.

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