Washington state’s legislature passed a bill imposing new restrictions on non-compete agreements late last week, which employers use to restrict workers with sensitive business information from taking jobs with similar companies.
Non-competes are controversial in tech. Big companies, like Amazon, use them to guard trade secrets but critics claim they stifle innovation. The contracts are virtually unenforceable in California, the heart of the global tech industry. Opponents of non-competes say Silicon Valley flourished because workers were free to leave big tech companies to launch startups.
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The bill that awaits Washington Gov. Jay Inslee’s signature doesn’t go so far as to ban non-competes but it does impose new restrictions on the polarizing contracts. The legislation is making waves in the Seattle tech industry, home to Microsoft, Amazon, and a bevy of startups that will be impacted if the law is enacted.
The regulations: The bill makes non-compete agreements unenforceable unless the employee in question makes more than $100,000 a year. For independent contractors, that threshold is $250,000. In other words, only highly paid employees in Washington state can have their future employment restricted by non-agreements.
Chris DeVore, managing director of Founders Co-op, supports tougher rules on non-competes but says the salary thresholds give an unfair advantage to big tech companies. “While Amazon and Microsoft effectively exempted themselves from complying with the law thanks to carefully crafted compensation exemptions … the bill is a huge win for workers in a broad range of non-tech jobs,” he said in an email to GeekWire.
The bill also says non-competes cannot be enforced for longer than 18 months and requires employers to compensate workers who have been laid off but are still restricted by non-compete agreements.
The California model: Non-compete critics have long claimed that Washington could learn a thing or two from California. Just this week, Salesforce marketer Tom Flanagan attributed the success of video conferencing startup Zoom to California’s policy on worker mobility. Zoom founder Eric Yuan left a job at WebEx to startup the company.
“It’s a great example of the benefits of California’s stance on non-competes, too,” Flanagan said in a tweet. “In most other states, someone like Eric Yuan probably just stays at WebEx and all Zoom’s innovation and value is never created.”
Hiya CTO Marcelo Calbucci, a veteran of the Seattle startup community, jumped in and agreed: “Washington state would never have been the home of Zoom.”
Exactly my thoughts. Washington state would never have been the home of Zoom. https://t.co/RzANIi3H6y
— Marcelo Calbucci (@calbucci) April 21, 2019
Yes, but: Michael Schutzler, CEO of the Washington Technology Industry Association, said he is “concerned that the compromise language reached creates an advantage for large corporations over startups in the war for talent” because big tech companies can afford higher salaries.
But the bill’s sponsor, Rep. Derek Stanford, dismissed that concern. “I’ve heard exactly the opposite from the startup community, from people who say non-competes have been a huge pain in being able to recruit people,” he said.
Looking ahead: Stanford said he has been in conversations with Inslee and expects the governor to sign his non-compete legislation into law in the coming weeks. If enacted, it would bring the rules governing worker mobility in Washington closer in line to California’s policies, which effectively ban non-competes.