Washington Employment Law Update: Mid-Year 2026 Legislative and Case Law Developments

It has already been an active year for Washington employers, and we are only halfway through. While the Washington Legislature added new laws impacting employers, the courts were also busy in some notable areas. Use the guide below to jump to the topics that matter most to you.

Legislative Updates

• Noncompetition Agreements (HB 1155)
• Federal I-9 Audits (HB 2105)
• Tax on Millionaires (SB 6346)
• Increased Enforcement and Costs for Recovery of Unpaid Wages (HB 2479 & SB 6058)
• Construction Hazards Sponsors (HB 2107)
• Unemployment Insurance in Employer-Initiated Layoffs (HB 2264)
• Workers’ Compensation - PTSD Treatment & Research (HB 2405)
• Paid Family & Medical Leave - Premium Rate Setting (SB 5292)
• AI Companion Chatbots (HB 2225)
• Collective Bargaining and Private Sector Coverage (HB 2471)

Washington & Federal Court Decisions

• Wage and Hour Settlement Not So Broad (Corbin v. Life Care Centers of America, Inc.)
• WLAD and Gender Identity Coverage Decided (For Now) (Olympus Spa v. Armstrong)

Legislative Updates

HB 1155: Noncompetition Agreements

Beginning June 30, 2027, noncompetition agreements of Washington employers will be considered void and unenforceable, regardless of when the parties entered into the covenant. This ban applies to both employment and independent contractor agreements in Washington. The ban includes the use of any provision that “threatens, demands, requires or otherwise effectuates that an individual return, repay or forfeit any right, benefit or compensation, as a consequence of the individual engaging in a lawful profession, trade, or business of any kind.”

Washington employers with existing noncompetition agreements as of June 2027 must notify current and former employees or contractors subject to the noncompete that the covenant is void and unenforceable. This notice must be provided no later than October 1, 2027.

Some exceptions to the ban apply, so long as the provision meets other statutory limitations:

1. Nonsolicitation agreements are permitted if within the bounds of other Washington restrictions, including expiration within 18 months after an employee’s termination. If the language of the nonsolicitation agreement is a general restriction on “accepting” business (without solicitation), it will be treated as a prohibited noncompete.
2. Confidentiality and nondisclosure agreements are exempted.
3. Educational expense repayment agreements are exempted if they expire within 18 months of the employee’s start date, repayment is limited to the pro rata portion of the time within the 18 months, and the employee does not need to repay if the separation is based on “good cause” as defined in RCW 50.20.050 (including serious personal illness, death of immediate family member, spouse relocation, reduction in hours or pay of 25 percent or more).
4. Noncompetes associated with a franchise sale are exempt if in compliance with RCW 19.100.020(1).
5. Covenants in the sale of a business interest are exempt if part of the sale of the goodwill of the business or an ownership interest representing more than 1 percent of the business.

Key Employer Takeaways

• Employers should audit all employment and independent contractor agreements containing noncompete provisions, determine which agreements will still be active on June 30, 2027, and prepare to issue the required notices by the deadline.
• Employers should cease using noncompete agreements by June 30, 2027.
• Employers should consider replacing existing noncompete agreements with compliant nonsolicitation and confidentiality agreements to protect business interests going forward. These agreements can include trade secret protections.
• Employers with operations in multiple states should ensure Washington employees are carved out or excluded from any company-wide noncompete agreements.

HB 2105: Federal I-9 Audits

Starting October 1, 2026, the Immigrant Worker Protection Act (RCW 49.004) will require employers to notify their workers promptly upon receiving notice of a federal I-9 audit, including notifying workers of the results of the audit and any deficiencies identified in a worker’s immigration status documentation. The Washington State Attorney General’s Office (AGO) will create a model notice for employers to use in case of an I-9 audit. The notice must be both posted on the employer’s premises in a conspicuous place and transmitted directly to workers using the primary method of communication. Notices regarding the audit results must be sent to affected workers and their authorized representative, including a description of the deficiencies related to the worker, the timeframe to correct deficiencies, include a scheduled meeting in the correction period with the affected worker and the employer, and provide notice of the worker’s right to representation. Information about other affected workers must be redacted from the notice (i.e. no mass notice, they must be individualized).

Any voluntary employer self-audits of I-9 documents must comply with federal and state laws and bargaining agreements.

Employers are prohibited from imposing work authorization verification requirements beyond federal requirements. Employers are also prohibited from retaliating against employees by using documentation audits based on an employee’s exercise of their rights as workers (i.e. I-9 audits cannot be used in retaliatory manner).

Key Employer Takeaways

• This law may be challenged for violation of or preemption by federal law, at least in part. Stay tuned!
• Once this law takes effect, Washington employers who receive a federal I-9 inspection notice must promptly notify affected workers of the audit and also notify of the audit results, including identified deficiencies to each affected individual employee. Employers should develop internal I-9 audit notification protocols before October 1, 2026, and train HR personnel on the notification obligations to ensure that any I-9 compliance practices do not exceed federal verification requirements.
• Unionized workplaces should be prepared for union involvement in any I-9 audit processes. ULPs could arise from alleged violations of this law.

SB 6346: Tax on Millionaires

SB 6346 imposes a new 9.9 percent excise tax on Washington residents with high levels of capital gains and investment income. The law targets individuals whose annual income exceeds the threshold amount of $1,000,000 adjusted gross income per household. This law was passed despite Washington’s long-standing Constitutional ban on income taxes. This tax applies to “residents” of Washington, including employees domiciled in Washington, unless they have no permanent place of abode in Washington, have an abode outside of Washington, and they spent less than 30 days annually in Washington. The law applies to employees with a place of abode in Washington who spend more than 183 days annually in Washington. Days include any portion of the day spent in Washington, including a 20-minute layover at SeaTac.

While SB 6346 is primarily a tax measure, it has downstream implications for Washington employers. High-earning executives, high-performance salespersons, company founders, and investors subject to equity compensation arrangements—including stock options, restricted stock units, performance bonuses, and capital gain distributions—may face increased tax obligations under this new framework. Employers with compensation structures that include significant equity, bonus, or investment components should be aware of how this tax interacts with compensation planning, particularly for highly compensated employees and owner-operators residing in Washington.

Key Employer Takeaways

• Employers with any employees, officers, directors, or investors who have or may have income over the one million threshold should promptly consult with tax counsel regarding how this law may affect them.
• Employers based in or with operations in Washington may need to consider remote working arrangements or other tools to attract and retain highly compensated employees who are not subject to this tax if working outside the state.
• Although the Washington Legislature and Governor made this law effective immediately, it is expected to appear on the November ballot, and its prospects are unknown.

HB 2479 and SB 6058: Increased Enforcement and Costs for Recovery of Unpaid Wages

Under HB 2479, effective June 11, 2026, the Washington Department of Labor & Industries (L&I) will have expanded enforcement powers under wage and hour laws. A new Wage Recovery Program within L&I will allow the department to disburse funds to unpaid low-wage employees before citations and notices are sent to employers. The program is slated to be operational in July 2028. In its present design, the program only applies to employees who would suffer immediate harm from nonpayment of wages. L&I may collect interest from employers on reimbursement payments made under the program, in addition to all other fines, fees, penalties, and interest for unpaid wages.

HB 2479 also expands L&I’s investigative authority to allow it to broaden investigations beyond the scope of the original complaint when it finds common questions of law or fact. L&I investigations can both expand beyond the bounds of a complaint if additional violations are discovered and be initiated by L&I on behalf of one or more employees when there is reason to believe there has been a violation. L&I can also consolidate investigations if there are common questions of fact for the same employer.

Additionally, under HB 2479, the cap on civil penalties that can be applied against employers for willful wage violations is eliminated, and the base civil penalty amount will increase every three years beginning in 2030 to match inflation. A matrix for penalty calculations with several criteria is to be created.

SB 6058, the companion law to HB 2479, gives L&I more investigative authority for willful wage violations, including discretion to investigate wage complaints under the Wage Payment Act. L&I will establish and publish a written process of assessment factors that the department will use to determine how wage complaints will be prioritized, with factors including severity of harm to the employee, number of employees potentially affected, and probability of retaliation.

Key Employer Takeaways

• Employers should expect increased financial exposure for willful wage violations under this law due to the removal of the penalty cap and increased base penalties. Willful violations—such as systematic failure to pay overtime or unlawful wage deductions—may result in substantial penalties across an entire workforce.
• Employers should regularly audit payroll practices, exempt classifications, independent contractor designations, payroll deduction practices, minimum wage compliance, meal and break periods compliance, overtime practices, and other practices that could come under L&I scrutiny.

HB 2107: Construction Hazards Sponsors

This law, which takes effect June 11, 2026, relates to Washington’s construction workplace safety framework under the Washington Industrial Safety and Health Act (WISHA) updating the safety and health standards applicable to construction. The law also requires the Department of Labor and Industries to make a good faith effort to notify an employer or owner within 10 working days if an onsite inspection identifies a hazard at any building construction worksite.

Key Employer Takeaways

• Employers in the construction industry should prepare for more onsite inspections, unannounced inspections, and higher fines and penalties if violations are found.

HB 2264: Unemployment Insurance in Employer-Initiated Layoffs

Employees who volunteer to be included in a reduction in force on or after June 14, 2026, will be considered laid off, not voluntarily separated, and will qualify for unemployment benefits. The statutory language states that employees will be considered unemployed through no fault of their own – and qualify for unemployment benefits – if the following steps are met:

1. The employer announced in writing to employees that they plan to reduce the workforce through layoffs and employees can volunteer to be laid off in the reduction;
2. The employee volunteered to be included in the reduction; and
3. The employee was terminated because of the layoff.

Giving employees an opportunity to rescind their volunteering to be laid off does not disqualify the employee from unemployment benefits if all the other requirements are met. This statute does not apply to situations that do not meet all three elements, such as an employer encouraging early retirement through modifying or extending employee benefits.

Key Employer Takeaways

• Keep in mind that if written layoff notices are issued and employees are terminated as a result, affected employees will likely qualify for unemployment benefits. This can affect an employer’s unemployment insurance tax rates.
• Based on this new law, even if employees volunteer to be included in a layoff, they will still qualify for unemployment.
• Employers considering layoffs should carefully document every step of each separation, specifically noting if separations are employer-initiated or employee-initiated.
• Employers considering using layoffs in lieu of terminating an employee for cause or due to performance deficiencies should take into account that unemployment benefits will likely be given to the laid-off employee(s).

HB 2405: Workers’ Compensation - PTSD Treatment & Research

This law expands Washington’s workers’ compensation system under WISHA (RCW 49.17) and the industrial insurance framework to address the treatment and research of post-traumatic stress disorder (PTSD) as a compensable occupational condition. A PTSD pilot program is being created with the aim of improving recovery outcomes and a sustainable return to work for employees with PTSD, particularly in high-stress work environments. Self-insurers can opt to participate in the pilot program.

Key Employer Takeaways

• Although this is a pilot program, it is a strong signal that in the future, PTSD claims will be accepted more often, or denials appealed more often with at least some being overturned on appeal. Employers should be aware that PTSD claims, especially in high-stress work environments, are more likely to be accepted in the future. While high-stress work environments would commonly include emergency services, law enforcement, or ambulance services, it is likely that some employees will argue warehouse, fast food, agriculture, or similar volume-based employment is also “high-stress” and can cause or be a contributing factor for PTSD.
• Employers should be reminded that if an employee claims stress-related “injury” or has a PTSD diagnosis, the employee should be provided the workplace injury reporting forms immediately.
• Employers should take this opportunity to review and update their workers’ compensation claim protocols, employee assistance programs, and a list of mental health resources available to employees.

SB 5292: Paid Family & Medical Leave - Premium Rate Setting

This law amends the premium rate-setting mechanism for Washington’s Paid Family and Medical Leave (PFML) program and changes how the annual total premium rate is calculated. New rates will be determined on or around October 20^th of each year. The total premium rate still cannot exceed 1.2 percent under the law. The premium rate is to be set at the lowest possible rate necessary to maintain solvency, reduce fluctuations, and build a four-month reserve.

Key Employer Takeaways

• Employers should expect increased fluctuations in premium rates year-to-year, depending on program utilization and fund balance.
• Employers should carefully monitor the annual October rate announcements from the Employment Security Department to be sure payroll taxes are withheld and paid at the appropriate rate.

HB 2225: AI Companion Chatbots

Marking the new realm of AI legislation, this law relates to chatbots. Beginning January 1, 2027, companies that operate AI companion chatbots must issue notifications that the chatbot is artificially generated at the start of the interaction and every three hours of continued interaction. Chatbots should not claim to be human. Additional protections exist if the operator of the chatbot knows that a user is a minor, including requirements to prevent sensitive conversations and manipulative engagement techniques. Chatbots must have programming specifically designed to respond to suicidal ideation.

Key Employer Takeaways

• This law is only addressing personal companion chatbots, and does not include bots that are used for business operations, productivity management, technical assistance, internal research, or customer service. The bots regulated by this law must be designed to generate outputs across multiple interactions and generate outputs designed to create an emotional reaction to qualify for the restrictions.
• Employers should be aware that employees may begin to bring companion chatbots to work, or use them at home if working remotely, as “emotional support” or for other purposes. These chatbots often record interactions, and employers should consider policies to proactively address chatbots at work, whether banning chatbots or prohibiting their use in the workplace or during working hours. Employers should anticipate ADA accommodations requests involving personal chatbots in the near future as well.

HB 2471: Collective Bargaining and Private Sector Coverage

This law establishes jurisdiction for the Washington Public Employment Relations Commission (PERC) for collective bargaining provisions of private sector employers if:

1. federal law stops preempting state labor regulations of labor management, employers, trades, or industries that had been subject to federal labor law; or
2. the National Labor Relations Board (NLRB) declines, loses, or is deprived of jurisdiction over certain employers or industries.

PERC’s jurisdiction has traditionally been limited to state public sector labor disputes, with very little private sector involvement. This law aims to expand PERC’s jurisdiction to employers or industries that the NLRB chooses to not regulate or cannot regulate.

This law also dictates that when PERC is tapped to take jurisdiction in a private sector bargaining it will take responsibility for all phases including determining appropriate units, certifying representatives, adjudicating unfair labor disputes, and all phases of mediation and arbitration. Organizations that held exclusive bargaining status under federal law in previous NLRB matters will be voluntarily recognized in any subsequent PERC adjudication. Existing bargaining agreements and terms will also remain in effect.

Critically, failure to reach agreement within six months of certification of the bargaining unit or expiration of a previous collective bargaining agreement (CBA) will be immediately submitted to interest arbitration that will be binding. The parties can agree to continue bargaining, but they must submit such agreement in writing to keep bargaining alive. If the remaining terms are submitted to interest arbitration, the arbitrator is empowered to review the party’s proposals and issue a decision on both submitted items and previously agreed terms to impose a complete agreement. The arbitrator is also empowered to resolve alleged unilateral changes to wages, hours, and other terms.

Both California and New York have recently passed similar bills, both of these bills have been challenged in court by the NLRB. The NLRB alleges that these bills unconstitutionally preempt federal law. This law is likely to face similar judicial review.

Key Employer Takeaways

• Private sector employers engaged in collective bargaining or facing labor disputes may be required to engage with PERC for state-administered mediation and arbitration services, even if NLRB would arguably normally have jurisdiction.
• Private sector employers with existing CBAs should review their dispute resolution provisions to understand how this new framework may interact with existing arbitration clauses.

In addition to the legislative changes, the courts have been busy in the first half of 2026 as well.

Washington and Federal Cases

Corbin v. Life Care Centers of Am., Inc.: Wage and Hour Settlement Not So Broad

A class action case against Life Care Centers, a rehabilitation and nursing care center in Washington, was settled for a lack of payment to employees for COVID-19 testing or screening during the heart of the pandemic. The settlement agreement included a release of claims against Life Care Centers for the unpaid time. After the court approved the final settlement agreement in the class action, two absent class members brought a punitive class action against Life Care Centers for missed meal periods.

Life Care Centers claimed that the suit was precluded by the settlement agreement. The court held that under the objective manifestation theory, the language of the release was specific to the COVID-19 claims and not applicable to all lost wage claims. This case made clear that Washington courts will narrowly determine the intended scope of a waiver of claims in interpreting the text of a settlement agreement, using an objective text and not unwritten subjective intent.

Key Employer Takeaways

• Careful drafting of settlement agreements remains important. If an employer intends a settlement to bar related but distinct wage claims, the release in the settlement agreement must say so explicitly. Ambiguous language is likely to be construed narrowly.

Olympus Spa v. Armstrong: WLAD and Gender Identity Coverage Decided (For Now)

A Washington-based, Korean-inspired women’s spa created a “biological women only” rule for entrance to their spa and wellness center. When challenged, the owner claimed the rule was viable under Washington’s anti-discrimination law (WLAD) as an exercise of free speech, free exercise of religion, and freedom of association. The Ninth Circuit Court disagreed with the spa’s assertion, finding that both biological sex and gender identity are independently protected under WLAD. The court further stated that sex-based service distinctions beyond bathroom separation may not be permitted under the statute.

The court rejected the spa’s free speech concerns, holding that the WLAD causes only incidental restrictions and only when essential to prevent other discrimination. The court also rejected the spa’s free exercise of religion claims, holding that WLAD was neutral on its face and generally applicable, and that the spa’s religious exercise was only incidentally burdened.

This case is particularly crucial for employers that provide places of public accommodation, because these spaces must be free from discriminatory practices under WLAD including discrimination based on gender identity.

Key Employer Takeaways

• Employers that provide places of public accommodation cannot discriminate on the basis of gender identity in public areas, other than bathrooms and locker rooms that are explicitly carved out of the WLAD.
• First Amendment claims such as free speech and freedom of religion will be unlikely to effectively block WLAD enforcement for gender identity discrimination claims. Religious-based organizations, such as houses of worship, may be treated differently.
• This case is likely to be appealed to the U.S. Supreme Court, or at least affected by anticipated upcoming Supreme Court decisions.

The legal issues impacting this topic are and will continue to be ever-changing (Employment Law in Motion!), and since publication of this blog post, new or additional information not referenced in this blog post may be available.

This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.