The most overlooked part of Washington’s new noncompete ban is that it does not only target clauses labeled “noncompete.” It reaches a whole category of compensation provisions that most employers never think of as noncompetes at all—forfeiture clauses, bonus clawbacks, and “stay-or-pay” arrangements.
The expanded definition
Under the enacted law amending chapter 49.62 RCW, a “noncompetition covenant” now includes any provision that threatens, demands, requires, or otherwise effectuates that an individual return, repay, or forfeit any right, benefit, or compensation as a consequence of the individual engaging in a lawful profession, trade, or business. In plain terms: if the cost of an employee going to work elsewhere is that they lose or must pay back money, the clause is treated as a noncompete—and after June 30, 2027 it is void.
What this sweeps in
- Forfeiture-for-competition provisions in bonus, commission, or deferred-compensation plans.
- Equity or profit-interest terms that cancel unvested (or clawed-back vested) awards if the person competes.
- “Stay-or-pay” and training-repayment arrangements that require repayment when someone leaves to work in the field.
- Sign-on or retention bonuses that must be repaid on departure to a competitor.
The one narrow exception
There is a carve-out for a genuine agreement to repay out-of-pocket educational expenses, but only if it expires within 18 months of the start date, limits repayment to the pro rata remaining portion of that period, and releases the employee if they separate for “good cause.” A general “repay your signing bonus if you compete” clause does not fit this exception.
Why it matters
Employers often use compensation forfeiture as a softer alternative to a hard noncompete—“you can leave, you just lose the unvested piece.” Washington now treats that economic penalty as the same thing as a noncompete. Continuing to enforce or even assert such a clause after the effective date can itself be a violation, exposing the employer to the greater of actual damages or a $5,000 statutory penalty plus fees.
What to do
- Have counsel read your bonus, commission, equity, and deferred-comp plans specifically for forfeiture-on-competition language.
- Redesign retention incentives around time-based vesting that does not hinge on where the person goes next.
- Fix any tuition or training repayment terms to fit the narrow 18-month educational-expense exception, or drop them.
This is the provision most likely to catch a business off guard, precisely because it is buried in compensation documents rather than a clause anyone calls a “noncompete.”
If you have questions about compensation, bonus, or forfeiture provisions in your agreements, you can reach us at martinkreshon.com or call (206) 929-0609. You can also find reviews for Martin on Google and Avvo.