Wash. Justices' Moonlight Ruling Should Caution Employers

The Washington Supreme Court recently limited when an employer can restrict low-wage workers from moonlighting.

On Jan. 23, the court ruled in David v. Freedom Vans LLC that such agreements are presumptively invalid for low-wage workers unless they are reasonable and narrowly tailored.

Broad prohibitions that prevent employees from providing any assistance to competitors during their employment surpass an employee's defined duty of loyalty. Thus, employers should carefully consider the restrictions they impose on Washington employees during their employment to avoid running afoul of Washington law.

Washington's Anti-Moonlighting Law

Since Chapter 49.62.070 of the Revised Code of Washington took effect in 2020, Washington has restricted employers from prohibiting their low-wage workers from moonlighting — i.e., "having an additional job, supplementing their income by working for another employer, working as an independent contractor, or being self-employed."

Low-wage workers are those earning less than twice the state's minimum wage, which is adjusted each year for inflation. Based on Washington's $16.66 hourly minimum wage in 2025, the current threshold is $33.32 per hour, i.e., $69,305.60 annually, assuming 2,080 hours worked per year. 

The law does not ban all anti-moonlighting agreements for low-wage workers. The statute allows three exceptions if the outside work (1) raises a safety issue, (2) interferes with the employer's "reasonable and normal scheduling expectations," or (3) alters the employee's obligations under existing law, including "the common law duty of loyalty and laws preventing conflicts of interest and any corresponding policies addressing such obligations."

Many employers rely on the third exception — the duty of loyalty exception — to prevent employees from working for competitors. This duty requires employees to act in their employer's best interest and to avoid conflicts of interest.

Historically, employers have maintained that employees providing services for a competitor during employment violates the employee's duty of loyalty to the employer.

Before Freedom Vans, no published case law provided guidance on how Washington's noncompete law related to this duty.

Case Background: David v. Freedom Vans

Freedom Vans converts vans into adventure vehicles — #VanLife, as many say. Plaintiff Jeremy David supervised the installation of components in the vans, such as paneling, flooring and electrical components. Plaintiff Mark Springer worked as an electrician installing electrical components in the vans. Both employees earned less than twice the minimum wage.

According to the decision:

Freedom Vans required all employees to sign a noncompete agreement prohibiting employees from "directly or indirectly engag[ing] in any business that competes" with Freedom Vans during their employment. The agreement defined "direct or indirect competition" as including, but not limited to, "engaging in a business as owner, partner, or agent" or "becoming an employee of any third party that is engaged" in a "competitive business."

Both plaintiffs signed this agreement and claimed that they had declined work opportunities to build and repair vans because of the agreement.

David and Springer left the company and filed a class action in 2022, alleging that the agreements they signed violated Washington's noncompete law, Chapter 49.62 of the Revised Code of Washington.

Freedom Vans won summary judgment, with the trial court ruling that Washington's noncompete law does not limit an employer's right to enforce an employee's duty of loyalty and their avoidance of conflicts of interest.

The Washington Court of Appeals affirmed, stating that the anti-moonlighting law permits employers to restrict outside employment in line with this duty.

The Narrowed Duty of Loyalty Exception

The Washington Supreme Court addressed whether Freedom Vans' anti-moonlighting provisions fell within the duty of loyalty exception. It was remanded to the trial court to make that determination.

In doing so, the Washington Supreme Court held that "barring employees from providing any kind of assistance to competitors exceeds a narrow construction of the duty of loyalty."

It reasoned that this narrow construction of duty of loyalty is "consistent with the economic realities animating the legislature's objective to facilitate workforce mobility, as many low wage workers must work multiple jobs to provide for themselves and their families."

The court cited a 2022 article from CBS News, which stated that the number of Americans with two full-time jobs had reached a historic high.[1]

However, the court declined to decide whether the duty of loyalty only prohibits employees from acting in direct competition with their original employer — meaning employee conduct that directly targets the employer's business, customers or operations — but does not bar "indirect competition," which the plaintiffs defined as "working for another employer doing job duties unrelated to the employee's job duties with the original employer."

The court stated that distinguishing between direct and indirect competition was unnecessary for the purposes of its analysis. Instead, it explained that while employers may impose anti-moonlighting prohibitions that are consistent with the duty of loyalty, those prohibitions must be reasonable and narrowly construed.

According to the court, "[r]easonableness is decided on a case-by-case basis," and considers "whether there is a need to protect the employer's business or goodwill, whether the restraint on the employee is reasonably necessary, and whether enforcing the noncompete agreement violates public policy."

Further, reasonableness of the moonlight provision must be determined in the context of the proclamation in Chapter 49.62.005(3) of the Revised Code of Washington, which states that the provisions of Washington's noncompete law "need to be liberally construed and exceptions narrowly construed."

Ultimately, the Washington Supreme Court remanded the case to the trial court to apply this reasonableness framework to the Freedom Vans moonlighting provision, noting that the trial court may need to resume fact-finding as necessary.

Potential Impact on Washington's Broader Noncompete Framework

Although Freedom Vans specifically addressed Washington's anti-moonlighting law, it suggests that a narrow interpretation of the duty of loyalty may apply to Washington's broader noncompete framework.

The court analyzed the Washington Court of Appeals' 1992 ruling in Kieburtz & Associates Inc. v. Rehn, which held that the duty of loyalty prevents employees from directly competing and soliciting customers for rivals during their employment.

According to the court, the Kieburtz court "relied on the description of the duty of loyalty set forth in Restatement (Second) of Agency § 393 that '[u]nless otherwise agreed, an agent is subject to a duty not to compete with the principal concerning the subject matter of [their] agency.'"

However, the court explained that Kieburtz predated Washington's noncompete law, which was passed in 2019, and thus does not interpret the duty of loyalty within the context of the state's existing noncompete law. Additionally, the restatement does not provide a carveout for low-wage workers.

In her concurring opinion, Washington Supreme Court Justice G. Helen Whitener disagreed, stating that Kieburtz continues to be relevant under current law.

She further explained that, based on Kieburtz's progeny, it is reasonable to conclude that employees are allowed to engage in actions — even for a competitor — that do not directly target the business or its customers, or disrupt its operations.

She argued that courts may be willing to consider the distinction between direct and indirect competition in future noncompetition cases involving the duty of loyalty, notwithstanding that the majority in Freedom Vans chose not to address this issue.

Key Takeaways for Employers

Employers may face an uptick in litigation challenging their anti-moonlighting provisions.

Washington's anti-moonlighting law provides a private right of action for actual damages or a $5,000 penalty, whichever is greater, plus reasonable attorney fees and litigation costs, with the potential for a class action.

Due to an amendment to Washington's noncompete law that took effect in 2024, nonparties to anti-moonlighting agreements, such as other employers or prospective employers, may also have standing to challenge these agreements now.

Out-of-state companies that have Washington employees or consultants should also be on notice of the ruling.

Washington's noncompete law is part of a patchwork of growing state laws that govern the use of restrictive covenants in the U.S. Some state laws explicitly purport to govern out-of-state agreements, such as California's, and others have a reach that is uncertain, like Washington's.

Noncompete agreements that involve employees or independent contractors who are considered to be "Washington-based" must be governed by Washington state law.

Additionally, Washington-based employees and consultants cannot be required to resolve disputes related to such agreements in courts outside Washington.

"Washington-based" is not defined in the statute, and no Washington court has interpreted the scope of the state's noncompete law in this regard.

Employers that have Washington-based employees should review their offer letters, employment agreements and policies to ensure that any anti-moonlighting, loyalty, conflict of interest, noncompete or other outside employment provisions are narrowly tailored, as consistent with the new ruling.

For anti-moonlighting provisions in particular, this involves examining agreements for overly broad language that would prohibit low-wage earners from providing any type of assistance to a competitor.

Conclusion

The Freedom Vans decision underscores the need for companies to narrowly tailor restrictive covenants, ensuring they are reasonable and consistent with the legislative intent of allowing for workforce mobility.

The ruling signals that broad anti-moonlighting restrictions affecting low-wage workers are unlikely to withstand judicial scrutiny.

As a result, both in-state and out-of-state businesses that have Washington-based employees or consultants should carefully review and revise their worker agreements to minimize the risk of exposure to litigation.