Clients often ask me to review their Employment and/or Non-Compete Agreements to see what kind of liability may arise in the event that they leave their company. While there is no clear cut answer to that question, there are numerous Washington cases that have addressed this issue and have provided guidelines for these types of agreements.
In Alexander & Alexander v. Wohlman, 19 Wash. App. 670 (1978) (citing Racine v. Bender, 141 Wash. 606, 252 P.115 (1927)), the court stated that “Generally, restrictive covenants in employment contracts are enforceable so long as the restrictions therein are not greater than are reasonably necessary to protect the business or good will of the employer, even though they restrain the employee of his liberty to engage in a certain occupation or business, and deprive the public of the services, or restrain trade.”
A court tests the reasonableness of a covenant not to compete by asking (1) whether the restraint is necessary to protect the employer’s business or goodwill, (2) whether it imposes on the employee any greater restraint than is reasonably necessary to secure the employer’s business or goodwill, and (3) whether enforcing the covenant would injure the public through loss of the employee’s service and skill to the extent that the court should not enforce the covenant, i.e., whether it violates public policy.
In Alexander, the court held that the non-compete agreement was unreasonable in extending for a radius of 100 miles from the location of the office but met the test of reasonableness when applicable only to the greater Seattle area and proscriptive only of the solicitation and diversion of business of any customer of the Seattle office of the employer to such employees for two years after the date of termination.
Recently, Amazon and Google battled over this very issue of key employee that left Amazon for Google. William Carleton, a local Seattle startup attorney, wrote a great article on Geekwire.com about this case and the main takeaways are this: 1) Companies should customize non-competes and not simply provide “form” documents, especially for key employees; 2) Companies hiring the departing employee should customize offer letter to reference non-compete – what could be called an “inbound compete”; and 3) Employees – if you are signing one of these be aware that the judge may simply red-line certain provisions that he/she disapproves of but will still enforce the agreement to some extent.
For more information on Bellevue Business Law or Seattle Business Law, consider contacting a Bellevue Business Attorney.