Non-Competes: A New Year Means Higher Income Thresholds In Many States

Earlier this month, we reported on the Federal Trade Commission’s (FTC) proposed regulation that, if adopted, would essentially abolish employee non-competes across the United States. While we await (and will promptly report on) further developments on that regulation, we note that the FTC’s proposed regulation did not occur in a vacuum.

Instead, as part of a nationwide trend to restrict non-compete agreements, many states have already taken the mantle of imposing income thresholds prohibiting non-competes for low-earning employees.  We have written about such restrictions here and here.  In several states, the threshold increases annually.  Specifically, thresholds in Colorado, Washington, Maine, Rhode Island, Oregon, and Virginia increase each year.  So, as we ring in 2023, we also ring in higher income thresholds in those states.

Because it is questionable whether the proposed FTC regulation will become law—and even if it does, it will take several months—employees should continue to monitor and comply with state-by-state non-compete laws as the proposed regulation works through the legislative process.

Two states have already published their new non-compete income thresholds.  Washington’s non-compete statute, RCW 49.62.020, originally established an income threshold of $100,000.  The Washington State Department of Labor & Industries adjusts the threshold annually to account for inflation.  According to its website, the 2023 threshold for employees is $116,593.18.  Similarly, Colorado’s new non-compete law established a non-compete income threshold and a non-solicitation income-threshold.  The non-compete threshold is based on the Colorado Department of Labor’s definition of a “highly compensated” worker, which is updated annually.  The non-solicitation threshold is 60% of the non-compete threshold.  In 2022, the non-compete threshold was $101,250 and the non-solicitation threshold was $60,750.  In 2023, the thresholds will be $112,500 and $67,500, respectively.

As for Maine, Rhode Island, Oregon, and Virginia, the 2023 thresholds are not yet known.  Maine and Rhode Island base their thresholds on the federal poverty level:  Maine’s is 400% of the federal poverty level and Rhode Island’s is 250%.  The federal poverty guidelines for 2023 will be posted here the week of January 16.  Oregon’s threshold is based on the consumer price index for all urban consumers, western region, which is scheduled for release on January 12, 2023.  And Virginia’s threshold is based on the average weekly wage in the commonwealth, which was updated last year on January 1, 2022, but has not yet been updated for 2023.

Of the various remaining states with income thresholds, none are set to increase this year.  Illinois and D.C. are set to increase in later years.  Specifically, under Illinois’s recent non-compete law, the $75,000 income threshold is not set to increase until 2017.  Under Washington, D.C.’s new law, the $125, 000 threshold will not increase until January 1, 2024.  As for the remaining states, a date of increase is not predetermined, and there is no reason to expect increases in 2023.  New Hampshire’s threshold is tied to the federal minimum wage, Maryland’s threshold is set at $15 per hour and does not change absent new legislation, Massachusetts’ threshold is tied to whether an employee is exempt under the FLSA, and Nevada’s threshold is based on whether an employee is paid on an hourly basis.

In light of the new thresholds, employers expecting to enter non-compete agreements with employees in Colorado, Washington, Maine, Rhode Island, Oregon, or Virginia should work with counsel to modify their agreements to meet the new standards.  They should also consider adjusting compensation for key employees who are close to the new thresholds.