The Washington Supreme Court recently addressed an important issue of first impression in the case of Springer v. Freedom Vans LLC, No.102566-1 (January 23, 2025). The case considered whether employers can prohibit low wage employees from working second jobs under a non-compete agreement. Central to the dispute was the proper interpretation of RCW 49.62.070, which memorializes the Washington legislature's commitment to promoting workplace mobility and protecting workers from overly restrictive non-compete agreements. The law recognizes that many individuals rely on multiple jobs to make ends meet. The legislative policy behind the law emphasizes that employers should not wield excessive control over an employee's ability to accept additional work. This decision marks a significant development in Washington employment law, affirming that employee protections against unreasonable restrictions will be enforced by the courts.
Facts and Procedural History of the Case
Freedom Vans LLC converts vans into mobile houses. Plaintiff Jeremy David was hired as a shop assistant and installed paneling, insulation, flooring, windows, fixtures, and related components. He was later promoted to a managerial position where he supervised the installation of the components as well as electrical prewiring. Plaintiff Mark Springer worked as an electrician and installed auxiliary battery systems, lighting, solar power, fans, and other electrical components. As employees of Freedom Vans, David and Springer never made more than twice the minimum wage.
All employees were required to sign a noncompete agreement which stated they could not "directly or indirectly engage in any business that competes" with Freedom Vans during their employment.
Both David and Springer claimed that they turned down offers to perform work building or repairing vehicles as they were concerned that any side employment would violate the non-compete agreement they signed with Freedom Vans. Both left their employment with Freedom Vans in 2021. They subsequently filed a class action lawsuit against Freedom Vans claiming that it violated chapter 49.62 RCW, which regulates the usage of non-compete agreements by employers. Freedom Vans filed a motion for summary judgment, which was granted by the superior court. On appeal the decision was affirmed. The Supreme Court then granted review.
The Statute and Workforce Mobility
The Supreme Court was tasked with addressing the issue of the statute's provision governing an employer's right to restrict low wage workers from obtaining additional employment. RCW 49.62.070(1) states, "[a]n employer may not restrict, restrain, or prohibit an employee earning less than twice the applicable state minimum hourly wage from having an additional job, supplementing their income by working for anther employer, working as an independent contractor, or being self-employed."
The law provides for an exception: "This section does not alter the obligations of an employee to an employer under existing law, including the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies addressing such obligations." RCW 49.62.070(2)(b). However, this exception must be narrowly construed. In enacting chapter 49.62 RCW, the legislature expressly stated, "[t]he provisions in this chapter facilitating workforce mobility and protecting employees and independent contractors need to be liberally construed and exceptions narrowly construed." RCW 49.62.005(3).
The Interplay of the Common Law Duty of Loyalty
As no published case law provides direct guidance on how the statute relates to the common law duty of loyalty or the scope of that duty, the Court had to navigate uncharted territory in determining the validity of non-compete agreements. The Court first looked to a foundational case on the common law duty of loyalty, Kieburtz & Associates, Inc. v. Wren, 68 Wn. App. 260, 842 P.2d 985 (1992). In that case, two employees, who were also shareholders in the plaintiff employer's company, formed a competing business during their employment and provided services to one of the plaintiff's clients. The employer alleged a breach of the employees' common law duty of loyalty, and the Court of Appeals agreed. Relying on the Restatement (Second) of Agency §393, the Court held that employees have a duty to not compete directly with their employer during their employment. Specifically, employees may not solicit customers for a rival business or act in direct competition with their employer.
David and Springer acknowledged the common law duty of loyalty established in Kieburtz and the Restatement. They agreed that the duty prohibits direct competition, such as soliciting customers for a rival business or accepting work involving the same duties as their current employment. However, they argued that the duty does not extend to "indirect competition", which they defined as "working for another employer doing job duties unrelated to the employee's job duties with the original employer." Based on this distinction, they contended that Freedom Vans' non-compete agreement, which prohibits both direct and indirect competition, was overly broad and therefore unenforceable.
Freedom Vans, however, argued for a broader interpretation of the duty of loyalty, citing the Restatement (Second) of Agency §394 and the Restatement (Third) of Agency §8.04, and claimed that employees are prohibited from assisting competitors in any capacity, regardless of whether the competition is direct or indirect. Freedom Vans maintained that its non-compete agreement was consistent with this broad interpretation and argued that their employees should not be able to assist any other Washington company specializing in convertible vans, even in unrelated job roles.
Although Kieburtz is a key case in defining the common law duty of loyalty, Court determined that it is not applicable to the present case. Kieburtz predated the enactment of chapter 49.62 RCW by nearly three decades and does not interpret the duty of loyalty within the context of this statute. The Court rejected Freedom Vans' expansive view of the duty of loyalty, noting that such an interpretation would render the protections of chapter 49.62 RCW meaningless. The statute expressly directs courts to construe employee protections broadly and any exceptions narrowly. The Court emphasized that the legislature's intent was to protect low-wage workers from unreasonable restrictions on their ability to earn supplemental income, a goal that aligns with promoting workplace mobility. A broad application of the duty of loyalty as argued by Freedom Vans would unreasonably restrict low-wage employees who often need to work multiple jobs to support themselves and their families. While the Court affirmed that the common law duty of loyalty remains intact, it clarified that this duty must be construed narrowly under chapter 49.62 RCW.
Non-Compete Agreements Measured by Reasonableness
Non-compete agreements are subject to the common law reasonableness standard, but the reasonableness of these agreements must be interpreted in light of the statute's purpose. See, e.g., Labriola v. Pollard Grp., Inc., 152 Wn.2d 828, 833, 100 P.3d 791 (2004). Reasonableness in non-compete agreements is determined on a case-by-case basis. Courts consider several factors, including the employer's need to protect its business interests or goodwill, the necessity of the restraint, and whether enforcing the agreement aligns with public policy. Emerick v. Cardiac Study Ctr., Inc., PS, 189 Wn. App. 711, 721-22, 357 P.3d 696 (2015).
Here, the Court found that Freedom Vans' blanket prohibition on direct and indirect competition exceeded the scope of reasonableness required under the statute. Prohibitions against competition must be narrowly tailored to avoid infringing on the statute's protections. Finding that Freedom Vans' non-compete agreement was overly broad and therefore unreasonable; the Court reversed the lower court's decision and remanded the case to superior court for further proceedings.
Conclusion
The Washington Supreme Court's decision in Springer v. Freedom Vans LLC highlights the delicate balance between an employer's need to protect legitimate business interests and an employee's right to economic freedom. By interpreting RCW 49.62.070 in a manner that prioritizes workplace mobility and safeguards low wage workers from excessive restrictions, the Court reinforced the legislature's intent to promote fairness in non-compete agreements.
This ruling sets a precedent for narrowly construing the common law duty of loyalty in the context of Washington's regulatory framework, underscoring that non-compete agreements must meet a reasonableness standard that considers the realties of today's workforce. As this case proceeds in the lower courts, it will serve as a reminder that employers must carefully craft their agreements to align with the statute's protections.