The Washington State legislature just passed a law severely limiting non-compete clauses in employment contracts. These clauses bar employees who leave from working for a competitor, most often for two or three years. The new law could lead to an upsurge in new Seattle-area startups, since some employees who've been prevented by these clauses from going out on their own can now quit their jobs to start their own companies.
The new law, which will likely be signed by governor Jay Inslee and go into effect in the coming weeks, should make the Seattle metro area even more Silicon Valley-like than it is now. That's because a longstanding California policy has made these clauses effectively unenforceable for years. That California rule allowed innumerable Silicon Valley techies to quit their jobs and work for startups or launch their own ventures.
Zoom, which went public last week in a hugely successful IPO, is a just one result of California's non-compete policy, Salesforce product manager Tom Flanagan explained in a tweet.
It's a great example of the benefits of California's stance on non-competes, too.-- Tom Flanagan (@tomflanagan08) April 20, 2019
In most other states, someone like Eric Yuan probably just stays at WebEx and all Zoom's innovation and value is never created.
Unlike the California rule, the new Washington law will have some pretty big exceptions: It doesn't apply to employees who make more than $100,000 a year, or contractors who make more than $250,000 a year. According to Glassdoor, the average salary for an entry-level software engineer in the Seattle area is $94,431. That suggests that while cafeteria workers and receptionists at companies like Microsoft will be free to leave and start their own ventures, those with real expertise may still have to wait. At least the wait might be shorter. The new law also requires that non-compete clauses last no more than 18 months. And if employees are laid off and unable to take new jobs because of such a clause, their former employer will be required to compensate them.
One opponent of bill, the CEO of the Washington Technology Industry Association, claims that the low threshold for exceptions is unfair to startups and small companies. He told GeekWire he is "concerned that the compromise language reached creates an advantage for large corporations over startups in the war for talent." His concern seems to be that smaller companies, that can't afford to pay employees as much as, say, Amazon can, won't be able to impose non-compete clauses of their own.
But startups and small companies may be less concerned about binding employees with non-compete clauses than they are with hiring those employees in the first place. The bill's sponsor, state representative Derek Stanford (D) says startup founders regularly complain that they can't hire the talent they need away from local large employers because of these clauses.
In other words, it's an imperfect law but it at least frees some tech company employees to take new jobs if they so choose, or go out on their own. That's still a whole lot better than no law at all.