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Noncompete agreements cost Seattle-area man a new job, lawsuit says

By Paul Roberts, The Seattle Times
Published: February 5, 2023, 6:00am

SEATTLE — Last March, Ian Morgan thought he was moving up in the world.

The automotive sales adviser had just accepted a job at Lexus of Bellevue for more than twice what he was making as the car dealer’s on-site rep for a national parts and tire vendor.

But after Morgan, then 30, told the vendor, Cleveland-based Dealer Tire, that he planned to leave, things went sideways, he said.

In a meeting with Morgan and a Lexus of Bellevue manager, a Dealer Tire official reminded Morgan that he’d signed a noncompete agreement and was barred from working for any Washington car dealership for a year, Morgan said. The Dealer Tire official also mentioned a second agreement, this one between the two firms, not to solicit each other’s employees, Morgan said.

Soon after that, Morgan said, Lexus of Bellevue withdrew the job offer. Morgan, of Mill Creek, quit Dealer Tire in June. He eventually found a job doing street maintenance with the city of Bellevue, but at a salary far below what Lexus had offered, he said.

Morgan is suing both Dealer Tire and Lexus of Bellevue over practices he said penalized him for nothing worse than “trying to get a living wage and move into a higher position.”

Lexus of Bellevue has denied any wrongdoing. Dealer Tire did not respond to questions about the litigation.

Morgan’s case may sound familiar to many workers. About 30 million American workers, or 1 in 5, work under noncompetition agreements, or noncompetes, according to the Federal Trade Commission. Some experts think the number could be closer to 60 million.

Agreements between employers not to solicit or hire each other’s employees, sometimes called “no-poach” agreements, are also common, legal experts say.

Both kinds of agreements have been around for decades and, employers say, have plenty of legitimate uses. Manufacturers use noncompetes to prevent sales reps from taking important clients to a competitor. Tech firms use them to keep employees from leaving with intellectual property. Amazon, for example, has become famous for “hardball” litigation against executives who’ve left for Google and other rivals.

But critics say the agreements are also used in far less justifiable ways. Lower-wage workers such as security guards, retail employees and fast food workers, and even musicians and other performers, are often bound by noncompetes. The agreements can keep workers from taking higher-paying jobs or from working as often as they’d like.

“Companies still threaten workers if they take a job at a competitor even when their primary employer will not give that worker full-time work,” said Tom Geiger, a spokesperson for the United Food & Commercial Workers, Local 3000, which represents around 53,000 grocery, retail and health care workers in Washington.

“Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” said FTC Chair Lina Kahn, who this month proposed banning most noncompetition agreements.

In theory, workers in Washington needn’t wait for a federal ban.

Under a 2020 state law, noncompetes are no longer enforceable for workers making less than around $116,600 or for contractors making less than around $291,500. (Both thresholds are adjusted for inflation by the state Department of Labor and Industries.) Noncompetes also can only last 18 months, versus the two or more years that some employers have demanded.

And as of June 2020, 237 corporations, including several fast food chains, have agreed to end no-poach restrictions among franchisees nationwide as part of settlements with state Attorney General Bob Ferguson under the state’s Consumer Protection Act. The settlements were spurred by a 2017 article about no-poach agreements in The New York Times.

California, North Dakota, Oklahoma and Washington, D.C., prohibit noncompetes with minor exceptions, while other states, including Oregon, Colorado, Illinois and Maine, ban them under certain conditions.

“There’s been a push from policy policymakers, state level and federal, to go after attempts to limit labor mobility and hold wages down,” said Evan Starr, a University of Maryland economist who studies the issue.

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Yet that push is far from over.

In Washington, many employers have indeed changed how they use noncompetes since the law took effect. Microsoft, for example, said in June it would stop enforcing the agreements for U.S. workers, and other employers have significantly narrowed noncompete requirements.

Many Washington health care employers now no longer use noncompetes for specialties where the restrictions “really seem indefensible,” such as emergency room medicine or anesthesiology, where physicians lack regular patients who might be moved to another employer, said Luke Campbell, an employment law attorney with Seattle-based Montgomery Purdue who works with health care providers.

But many businesses are still trying to enforce unenforceable noncompetes and other restrictions, legal experts and advocates say.

Last year, Seattle musician and composer Jovino Santos Neto booked a gig at a Seattle-area venue for January 2023. But when the promoter learned that Santos Neto had also booked a gig “a few miles” away for September 2022, he threatened to postpone.

The reason: He didn’t want Santos Neto to play “in such close proximity,” the musician said. “And for him, four months was ‘close proximity.’ “

Santos Neto said the promoter backed down when alerted about Washington’s new state law, which allows venues or promoters to impose only a three-day waiting period between performances. Santos Neto thinks the promoter simply didn’t know the law.

Some legal experts say that’s likely for many employers or contracting businesses. Washington’s noncompete law is relatively new and contains numerous exceptions, not all of which have been interpreted in court, said Peter Nohle, an employment law attorney at the Seattle office of Jackson Lewis, which represents employers.

The bigger awareness problem, observers say, is with workers.

Many don’t realize they’ve signed a noncompete agreement or understand how it works, or whether it’s enforceable, which can leave them vulnerable to unscrupulous employers.

For example, an employer might successfully prevent a worker from leaving for a competitor merely by hinting at the possibility of legal consequences but without actually seeking to enforce the agreement in court, attorneys say.

That hint could come during an employee’s exit interview or later in a letter that says “ ‘Hey, just to remind you, you signed this agreement and can’t go elsewhere,’ “ said Seattle employment lawyer Timothy Emery, who is representing Morgan. Given the “lopsided power dynamic” between workers and employers, Emery said, a hint is often “enough to get employees … to follow these agreements.”

The state attorney general’s office has received just 111 complaints about the law since it went into effect Jan. 1, 2020, but believes “there are very likely more issues than represented by the complaints,” said office spokesperson Brionna Aho.

But even workers who do know their rights can be stuck, attorneys say.

Many employers are reluctant to hire otherwise qualified candidates bound by noncompetes. Even if those noncompetes are unenforceable, a future employer may see them as a potential legal liability, said Montgomery Purdue’s Campbell.

In such cases, those workers must get their former employers to release them from the noncompetes, which often requires taking them to court, Campbell said. “And most employees don’t want to do that,” Campbell said.

And employees who do go to court face an uncertain outcome.

In his litigation against Dealer Tire, for example, Morgan argued that the company’s noncompete agreement wasn’t enforceable because his salary never exceeded the state law’s salary threshold. Because Dealer Tire required other employees to sign the same agreement, Morgan has asked the court to certify a class-action lawsuit, which King County Superior Court Judge Suzanne Parisien granted Jan. 6.

Dealer Tire, in its own filings, said it never sought to enforce Morgan’s noncompete agreement and that Lexus of Bellevue withdrew Morgan’s job offer because of its nonsolicit agreement with Dealer Tire.

On Jan. 12, Morgan filed a new suit, against both Dealer Tire and Lexus of Bellevue, arguing that the nonsolicit agreement between the two companies violated the Washington state Consumer Protection Act as antitrust conspiracy. Morgan has requested class certification here, too, on the claim that Dealer Tire has similar nonsolicit agreements with “dozens” of other unnamed automotive dealerships in Washington.

Neither Dealer Tire nor Lexus of Bellevue has responded in court to that claim. In an emailed statement, Lexus of Bellevue General Manager Jason Vena said “we deny any wrongdoing and do not believe that Lexus of Bellevue should be part of this lawsuit.”

A trial date in Morgan’s first suit, over Dealer Tire’s noncompete agreement, is set for the fall.

That may be a little late for Morgan. He said he’d like another chance at a trade he worked in for 11 years and trained for in college, but worries he may have been away too long. In a field as technical as this, “it’s really hard to get back in once I’ve lost almost two years of knowledge,” he said.

Others in the business may be a little luckier.

In October, shortly after Morgan filed his noncompete lawsuit, Dealer Tire notified current and former Washington employees with sub-threshold pay that it was dropping their noncompetes, according to a court filing by the company.

Owing to “recent developments in Washington state law,” Dealer Tire wrote, those workers’ noncompete agreements were “no longer effective and rescinded” and “will not be enforced against you.”