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New Washington Non-Compete Bill: Many Covenants for Employees and Independent Contractors Unenforceable

Posted Monday, July 8, 2019 by Kim Sandher

Non-compete covenants are designed to protect your company and are meant to protect businesses owners from former employees or independent contractors leaving and working for a competitor or opening a competing business. These protections have just become more limited for business owners as a result of new legislation recently signed by Governor Inslee. As a business owner, you’ll want to check your non-compete covenants and see that they comply with the new law.

Last month, Governor Inslee signed a bill, which limits the scope and enforceability of non-compete agreements in Washington. The bill includes provisions relating to moonlighting restrictions and franchise agreements as well. Any action to enforce these provisions that starts on or after January 1, 2010, will be subject to this new law, regardless of when the non-compete was entered into or when the cause of action arose. This means it applies to existing non-compete agreements, which may have been signed years ago.

What is a non-compete covenant?:

It is defined as a written or oral covenant, agreement, or contract by which an employee or independent contractor is prohibited or restrained from engaging in a lawful profession, trade, or business of any kind. A non-compete covenant does not include:• Non-solicitation agreements limiting former employees from soliciting customers to stop or restrict business with the company • Non-solicitation agreements limiting former employees from soliciting former coworkers to leave the company • Confidentiality provisions • Prohibitions on use or disclosure of trade secrets • Non-compete agreements entered into at the sale of a business • Non-competes by a franchisee when the franchise sale complies with RCW 19.100.020(1)

New Income Threshold

Non-compete covenants will be unenforceable unless the employee’s W-2 earnings are more than $100,000/year (on the date the employer seeks to enforce the covenant or the date employment ends, whichever occurs first) or an independent contractor is paid more than $250,000/year for the prior year). These amounts will be adjusted annually for inflation.

For most startups, this means you will not be able to enforce non-compete agreements against employees or independent contractors, unless you pay them a significant amount of money. For example, if you hired someone for an annual salary of $75,000, you won’t be able to enforce a non-compete covenant against them.

Newly Established Time Limit

This new law creates a presumption any non-compete covenant longer than 18 months is unreasonable and unenforceable. This presumption is only overcome by clear and convincing evidence a longer duration was necessary to protect the employer’s business or good will. Most employers will need to limit non-compete agreements to 18 months.

There is an exception to certain aspects of the statute for “performers,” which we believe is likely related to actors and others who perform on stage.

New Liability for Damages and Attorney Fees, Even if the Noncompetition Covenant is Enforced.

Regardless of whether the Attorney General, former employee, former independent contractor, or your company files suit regarding the non-compete covenant, if a court or arbitrator rules that the covenant violates the new law or has to modify even a minor part of the agreement to make it enforceable, the company will have to pay the greater of $5,000.00 or actual damages, plus attorneys’ fees, expenses, and costs to the employee.

While businesses are free to modify or create new non-compete covenants to comply with these new requirements, the business could still be responsible for paying attorneys’ fees and costs when it comes time to enforcing these covenants.

New Protection for Laid Off Employees Requiring Ongoing Compensation

The reasoning behind non-compete covenants is to help employers prevent an employee from learning valuable business information one week and then leaving with their new found knowledge to work with a competitor the following week.

The new bill tries to address a situation where the employee is laid off and prohibited from working for any competitor for the next year and half because of what they learned. Thus, the new law requires that to enforce a non-compete against an employee who is terminated because of a layoff, the employer must pay the employee their base salary during the enforcement period, less any earnings the employee earns through subsequent employment during that period.

For example, if you hire someone for $50,000/year and you lay them off three months later. If you want to enforce the non-compete covenant against them saying they can’t work in your industry for the next year and half, you’ll need to continue paying them their salary (minus any earnings they have from another job not in the industry).

New Limits on Forum Shopping and Choice of Law

This limit prevents employers from using another state’s law to govern the agreement and litigate it in that state instead to avoid these new Washington restrictions. Provisions in non-compete agreements with Washington based employees and independent contractors are going to be void if they require disputes to be adjudicated outside of Washington or if they deprive the person of the protections under the new law.

New Disclosure and Consideration Obligations

The non-compete covenant has to be disclosed in writing to a prospective employee no later than the time they accept an offer of employment, even if the non-compete becomes enforceable only at a later date because of an increase in the employee’s pay in the future.

If the employee is asked to sign a covenant after already starting work and being paid, the employer will have to pay independent consideration, such as a raise or a bonus, for it to be enforceable.

New Restrictions on Franchisors/Franchisees

This bill prohibits franchisors from restricting franchisees from soliciting or hiring employees of the franchisor or another franchisee. However, the new law excludes noncompetition covenants entered into by a franchisee, if the franchise sale is registered properly per Washington’s Franchise Investment Protection Action, or is exempt from registration. A franchisor should still carefully consider whether its operation falls within the definition of an employment relationship under RCW 49.17.020 when it is attempting to enforce a non-competition agreement against a franchisee.

New Restrictions on Prohibiting Employees from Moonlighting

Starting January 1, 2020, this bill prohibits anti-moonlighting restrictions against employees who earn less than twice Washington’s minimum wage, with some limited exceptions. Under the new law, an employer cannot restrict or prohibit an employee that earns less than $27.00 in 2020 from having a second job, working as an independent contractor, or being self-employed. The minimum wage in Washington State will be $13.50 in 2020 and will be adjusted annually for inflation so this $27.00 pay level will change each year.

However, employers can still prohibit moonlighting where it would cause issues of safety for the employee, coworker, or the public, or it would interfere with the employer’s reasonable and normal scheduling expectations. An employer could also prohibit an employee from moonlighting at a job where it would present a conflict of interest because the employee still continues to have a duty of loyalty and there are laws preventing conflicts of interest.

Impact on You as a Business Owner

This new bill seems to reduce the chance for startups to use non-compete agreements because startups typically have low capital and pay low compensation to employees and independent contractors or they will often compensate only through equity, which would make non-compete covenants almost impossible to enforce.This will likely make it more costly for business owners to enforce the non-compete agreements because an employer could end up paying all of employee’s litigation fees even with an enforceable agreement if it has to be enforced through the legal system. Do keep in mind, the employer does still have protections available to it, including the Uniform Trade Secrets Act, which will prohibit a former employee from taking trade secrets and exploiting them through a competitor.As a business owner, you should review any existing agreements and policies to ensure they will pass legal muster after January 1, 2020 and put yourself in a better position to negate employee arguments that the agreements are excessive in scope and thus unreasonable.

Pivotal Law Group recommends all employers who utilize non-compete agreements in their business to contact us as soon as possible to review your forms and formulate a strategy for how to address the impacts of this law with existing employees and future employees.

Please contact either managing member Chris Thayer at (206) 805-1494 or CThayer@PivotalLawGroup.com, or senior associate Kim Sandher at (206) 805-1490 or KSandher@PivotalLawGroup.com.

A full copy of the bill is here: http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/House%20Passed%20Legislature/1450-S.PL.pdf#page=1

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Case Law Update: The Tort of Outrage/Intentional Infliction of Emotional Distress

Posted Monday, July 8, 2019 by Christopher L. Thayer

The Washington Court of Appeals Division III recently addressed a case involving the tort of Outrage, also known as Intentional Infliction of Emotional Distress in Spicer v. Patnode, No. 36065-2-III, June 25, 2019. Claims for Outrage are fairly rare as are reported cases which break down and analyze the elements. After reading the Spicer case, however, it certainly seems like an appropriate claim for the conduct engaged in by the defendant.

Patnode and Spicer are neighbors in Yakima County, Washington. Prior to the conduct giving rise to the Outrage claim, they had a long history of conflict over Spicer providing piano lessons in her home to children. In 2012, Patnode complained to Yakima County about Spicer’s piano lesson business. He complained of increased traffic, damage to a sprinkler, noise from car doors shutting and remotely locking and headlights coming into his house.

The complaints prompted Yakima County to require the Spicers to obtain a conditional use permit for their business. On July 11, 2012, the Spicers obtained a minor home occupation permit from Yakima County. The permit authorized Ms. Spicer to teach piano lessons for up to five students per day. Lessons were permitted from 2:00 p.m. to 6:00 p.m., Monday through Friday, September through May. The permit required the Spicers to provide off-street parking for customers. Throughout 2012 Mr. Patnode continued to complain about Ms. Spicer’s business.

In December 2012, Mr. Patnode sued the Spicers and alleged that their piano business violated the restrictive covenants that applied to the neighborhood. In 2014, the Spicers prevailed on summary judgment. Mr. Patnode was ordered to pay more than $30,000 for the Spicers attorney fees and costs.

From 2015 to March 2016, Patnode began parking his Ford F250 diesel pickup truck along the sidewalk in front of the Spicer residence. During this time Patnode regularly and repeatedly remote-started his truck and set off its alarm when Ms. Spicer’s students and their parents walked by the truck. The conduct frightened Ms. Spicer and her students.

Later in 2016, Ms. Spicer petitioned for an anti-harassment order against Patnode. Based on evidence presented at the anti-harassment hearing, the court granted Ms. Spicer’s request and entered an anti-harassment order. The order prevented Mr. Patnode from parking vehicles on Ms. Spicer’s side of the street and required him to disable the remote start and alarm on his truck. Mr. Patnode complied with the order.

After receiving the anti-harassment order, Spicer filed a civil lawsuit against Patnode seeking damages for Outrage. The matter proceeded to trial. At trial, Ms. Spicer testified Patnode’s conduct caused her severe emotional distress and fear for her safety and the safety of her students. She testified Patnode’s conduct caused her insomnia and required her to take anti-anxiety medication. The trial court ultimately found in favor of the Spicers, awarding them $40,000 against Patnode. Patnode appealed.

To constitute the tort of Outrage, the conduct at issue “must be so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency, and to be regarded as atrocious, and utterly intolerable in a civilized community.” Reyes v. Yakima Health Dist., 191 Wn. 2d 79 (2018). Therefore, the “tort of outrage does not extend to mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities… plaintiffs must necessarily be hardened to a certain degree of rough language, unkindness and lack of consideration.” Kloepfel v. Bokor, 149 Wn. 2d 192 (2003).

In order to prevail on a claim for Outrage, the plaintiff must show (1) extreme and outrageous conduct, (2) intentional or reckless infliction of emotional distress, and (3) plaintiff actually experiences emotional distress. Lyons v. US Bank National Assoc., 181 Wn. 2d 775 (2014).

The Court of Appeals in Spicer reviewed various reported cases involving claims for Outrage and concluded “[a]s the cases reflect, what constitutes outrage is nebulous and difficult to define.” The court went on to note:

First, to impose liability, the law requires the conduct to be so outrageous in character, and so extreme in degree, as to go beyond all possible bounds of decency as to be utterly intolerable in a civilized community… Second, liability may not be imposed for mere insults, indignities, threats, annoyances, petty oppressions, or other trivialities… And third, somewhere between these standards, the question of liability passes from a court of law to the trier of fact.

The Court of Appeals ultimately affirmed the trial Court’s decision and noted:

Had Mr. Patnode remote-started his truck occasionally to scare passing piano students, this would not be actionable. Rather, it would constitute a mere annoyance – a triviality. But this is not what Mr. Patnode did. Instead, he engaged in a course of conduct over a period of four months intending to cause Ms. Spicer sufficient emotional distress so she would stop teaching piano lessons at her house. He intended to achieve through harassment what he had been unable to achieve through legal means.

The Spicer case is illustrative of the perils of disputes between neighbors, which can spiral out of control and cause otherwise sane people to engage in behavior that is unreasonable. It should be noted the Spicer case is unusual and successful Outrage claims are rare. If you have questions about this case or about an issue with a neighbor, feel free to contact Chris Thayer at (206) 805-1494 or CThayer@PivotalLawGroup.com.

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Lime, Bird, Uber, Spin, Lyft, Jump and other electric scooters may be coming to Seattle soon – what happens if you are injured?

Posted Wednesday, June 5, 2019 by Christopher L. Thayer

Residents of Seattle have become accustomed to the presence of Lime Bikes, the colorful green and yellow bicycles for rent via an app on your smart phone. An increasing number of these bikes are electric, and soon Lime (and perhaps others) will be adding to their fleet of electric vehicles for pedestrians: electric scooters. Electric scooters are small 2-wheeled scooters with a rechargeable battery and an electric motor.

Common in other parts of the country, including Santa Monica, California, the small 2-wheel electric scooters are intended to help commuters with an alternate “clean” means of transport – plus they can be loads of fun. But, they are also potentially dangerous and can cause serious injury.

Seattle streets and sidewalks may soon be overrun with Bird, Lime, Jump, and Spin electric scooters. Having seen them in California, I can say that one of my first thoughts was, “wow, that looks like fun,” and my immediate second thought was “jeez you would really get hurt on one of those.” While on a recent vacation in Santa Monica, I was nearly run over by someone riding an electric scooter on the sidewalk.
The benefits, like ease of use and access, are key to the popularity of electric scooters. They are not without risk, however. Some factors to consider:

Speed: The electric motors are powerful and can propel riders up to 15 miles per hour. Although that may not seem all that fast – you may have a different conclusion if you hit a telephone pole at that speed. Keep in mind the average walking speed of a pedestrian is approximately 3 miles per hour.

Riding on sidewalks: Whether electric scooters will be allowed on sidewalks (vs roadway or bike paths) remains to be seen. Electric scooters and pedestrians on a busy sidewalk is a dangerous combination – something I can attest to personally having nearly been knocked off my feet by a person zipping by on a scooter.

Trip hazards: once people are done riding a scooter they can just leave it in the middle of the sidewalk, posing a potential trip/fall hazard.

Potholes and sidewalk cracks: anyone who lives in Seattle can tell you about the cracks and potholes in the paved roads as well as the cracked and uneven sidewalks. With their small diameter wheels, electric scooters are not well suited to deal with these hazards.

Some of the risks for electric scooter riders include:

Scooter Riders are hard to see: Scooters are small and have a low profile; therefore, motorists are less likely to see them.

No barrier between scooter rider and road: Scooters do not have roll bars or any other safety protection. Moreover, most scooter riders do not wear helmets.

Less stability: With only two small wheels, the scooter can be difficult to maneuver, particularly during emergency braking.

Inexperienced riders: A high percentage of electric scooter riders have never ridden one before. There is no special licensing, training or qualifications required. If you can download the app and enter your credit card information, you are good to go.

Emergency stop: Under hard sudden braking conditions, the rider can be thrown off the scooter – potentially into traffic.

Intoxication or impairment: A person who knows well enough not to drink and drive might well be tempted to hop on a scooter as an alternate means to get home after an evening at a bar, but operating a scooter on the roadway or even the sidewalk when impaired could prove disastrous.

How do I obtain fair compensation in the event of an electric Scooter Accident?

This can be a challenge, and is an area of evolving law, which may well prompt legislative changes with ripples to the insurance industry. Finding a source of compensation for injuries caused by Bird, Lime, Jump, and Spin electric scooter accidents can present serious challenges. Though Washington law requires motor vehicle drivers to have liability insurance, there is no such requirement for electric scooter riders.

Who is at fault for the accident involving an electric scooter (Bird, Lime, Jump, or Spin, etc.) will determine whether there are resources to compensate you for your injuries:

Rider at fault for someone else’s injuries: If the scooter rider was at fault for an accident then the rider is liable for your injuries. If the scooter rider had homeowner’s or renter’s insurance, their insurance company may cover your claim.

Scooter company at fault: If the scooter malfunctions resulting in injury, the manufacturer may be liable for your injuries, if it can be proven the electric scooter was unsafe.

Car vs. scooter: If you are riding an electric scooter and are struck by a vehicle, the driver’s auto insurance carrier will be liable for your injury claim, and there may be insurance coverage for your medical expenses – regardless of fault.

Scooter v. Pedestrian: If a pedestrian causes a scooter rider injuries, by stepping out suddenly in front of a scooter, then the pedestrian’s homeowner’s or renter’s insurance may pay.

Hazard created by private property owner or business: If a scooter rider is injured due to an unsafe condition (hazard) created by a property owner or business, that person or entity may be at fault and the scooter rider may be able to make a claim against the homeowner or business owner’s insurance.

Government liability: In Washington, municipalities are required to keep the roads and sidewalks “reasonable safe for normal travel”. If the municipality fails to satisfy this obligation, there may be a claim against the government entity.

Dog owner at fault: If a dog chases an electric scooter rider, and bites or attacks the rider, the dog owner is liable and their homeowner’s or renter’s insurance policy may apply.

Because electric scooters are a new form of transportation and there are few laws in place to deal with their use (and potential abuse), electric scooter accidents can involve complicated and novel legal issues. If you are involved in an accident with a scooter, feel free to call managing member Chris Thayer at (206) 805-1494 or email at CThayer@PivotalLawGroup.com.

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Significant Changes in Washington’s Landlord-Tenant Laws (2019)

Posted Friday, May 17, 2019 by Christopher L. Thayer

Washington Governor Jay Inslee has recently signed Senate Bill 5600, which makes significant changes to the existing Residential Landlord Tenant Act (“RLTA”) in Washington as codified in RCW 59.18. The changes will impact the rights for both landlords and tenants. Landlords will need to adopt new forms and adjust certain practices. This new act goes into effect July 27, 2019.

It is important to note this revised law only applies to residential tenancies, and not commercial tenancies. Commercial landlord tenant eviction proceedings are governed by RCW 59.12, which remains unchanged.

This article is intended to summarize the changes in the law only. The full text of the new law can be found here: http://lawfilesext.leg.wa.gov/biennium/2019-20/Pdf/Bills/Senate%20Passed%20Legislature/5600-S.PL.pdf#page=1

14 Day Notice now required for failure to pay rent

Under the prior law, evictions based on tenant’s failure to pay rent were initiated by first providing a 3-day pay or vacate notice. This short timeframe was in place to expedite the landlord’s ability to regain possession of the premises where the tenant was not paying rent. Starting July 27, 2019, landlords will need to provide defaulting tenants with a 14-day pay or vacate notice. The language required for the new notice is spelled out in the statute and the Washington Attorney General will post sample forms on its website.

Application of payments

Landlords will now be required to apply payment by tenant to any rent owing, before applying it towards any fees (including attorney’s fees), damages, costs, or other charges. Previously, landlords were free to apply the payment however the landlord wanted to.

Stay of Writ of Restitution

Those who are familiar with landlord tenant law and evictions will know that a “writ of restitution” is the document authorized by the clerk of the court, which authorizes the eviction of the tenant. Under the new law, where a landlord obtains a judgment authorizing the eviction of a tenant for nonpayment of rent, the tenant may apply at any time prior to the actual eviction to stay the execution of the writ of restitution “upon good cause shown”. The burden of proof is on the tenant. Any stay of the writ of restitution shall not exceed 90 days. The statute requires the judge to consider the following factors in deciding whether to grant a stay of the writ:

• Tenant’s willful or intentional default or intentional failure to pay rent;

• Whether nonpayment of rent was caused by exigent circumstances that were beyond tenant’s control and are not likely to recur;

• The tenant’s ability to timely pay the judgment;

• Whether the tenant is otherwise in substantial compliance with the rental agreement;

• Hardship on the tenant if evicted;

• Conduct related to other notices served within the last six months.

Note also that a tenant who has received 3 or more notices to pay or vacate in the preceding 12 month period is not entitled to seek a stay of a writ of restitution which has been issued for failure to pay rent.

If a stay is granted, the court may impose a payment plan for the tenant, which must be paid in 90 days or less.

New Eviction Summons

The law completely revamps the form and language included in an eviction summons.

Award of Landlord’s attorney fees against tenants limited

If a landlord has received a judgment authorizing eviction of a tenant, the court may order the award of reasonable attorneys’ fees to the landlord; however no such award of attorneys’ fees is authorize where (a) the judgment is entered by default (i.e., tenant failed to appear); or (b) the total amount of rent awarded is equal to or less than 2 months of lease payments or $1,200, whichever is greater.

Mitigation funds

Under certain circumstances the landlord and/or tenant may apply to receive mitigation funds from the landlord mitigation program established under RCW 43.51.605(1)(c). Application for such funds is initiated by filling out a form provided by the Washington Attorney General’s office.

Conclusion

The revisions to the RLTA will significantly impact the landlord tenant relationship and the proceedings required to initiate an eviction. For questions about the revisions to the Act or how, as a landlord, to ensure compliance with the Act, please contact managing member, Chris Thayer at (206) 805-1494 or CThayer@PivotalLawGroup.com

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Estate Planning Legal Update: WA State Legislature Passes Bill Allowing Human Composting As Alternative to Traditional Burial

Posted Thursday, April 25, 2019 by Pivotal Law Group

Washington State’s legislature recently passed a bill (Senate Bill 5001) that would allow human composting as an alternative to burial or cremation.

The bill legalizes disposal of human remains via “natural organic reduction,” which is the accelerated decomposition of human remains into soil. The process transforms human remains into soil over only a few weeks. The bill also legalizes a similar process, “alkaline hydrolysis,” the reduction of human remains using heat, pressure, water, and base chemical agents. The bill allows persons to establish their desire to have their remains composted through a valid written document signed in the presence of witnesses. The new law also establishes regulation of human composting providers.

The new bill emphasizes: “A person has the right to control the disposition of his or her own remains without the pre-death or post-death consent of another person.”

The bill is expected to be signed by the Governor, and will take effect May 1, 2010.

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