Court Opinion

ID: 9898150
Source: CourtListenerOpinion
Date Created: 2023-11-14 19:28:47.598351+00
Date Added: 2024-06-11T09:16:12.017369
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

 JEREMY DAVID and MARK
 SPRINGER, individually and on behalf
 of all others similarly situated,                 No. 84867-4-I

        Appellants/Cross Respondents,               DIVISION ONE
 v.
                                                    UNPUBLISHED OPINION
 FREEDOM VANS, LLC, a Washington
 limited liability company; and DOES 1-
 10,

        Respondents/Cross Appellants.

       DÍAZ, J. — RCW 49.62.070 places limits on an employer’s ability to prohibit

its employees from supplementing their income through outside employment.

However, restrictions on outside employment are permissible under the statute if

they are grounded in obligations under existing law, including the duty of loyalty

owed to employers and the duty to avoid conflicts of interest, or the restrictions are

“policies addressing” those established obligations. Here, the employer required

its employees to agree not to “directly or indirectly engage in any business that

competes with the employer,” and specifically to refrain from working for any

competing business. The trial court granted summary judgment and dismissed a

putative class action lawsuit brought, under the statute, by former employees

challenging those “anti-moonlighting” provisions of their employment contracts,

concluding that the provisions comply with the statute. We agree and affirm. We
No. 84867-4-I/2

also affirm the trial court’s decision denying the employer’s request for its

attorneys’ fees.

                                   I.      FACTS

       Freedom Vans LLC, based in Bellingham, converts and customizes vans

into mobile houses. In September 2019, Jeremy David, an experienced carpenter,

accepted a job with Freedom Vans as a shop assistant. Freedom Vans later

promoted David to the position of Foundations Manager. In February 2020, Mark

Springer, an automotive mechanic, accepted a position to work as an electrician

for Freedom Vans.

       In April 2020, Freedom Vans required its current employees, including

David and Springer, to sign a “Non-Compete Agreement” (the “agreement”).

Among other things, the agreement prohibited Freedom Vans’ employees, during

their employment, from “directly or indirectly” engaging “in any business that

competes” with Freedom Vans.            The agreement defined direct or indirect

competition, in pertinent part here, to include “becoming an employee of any third

party that is engaged” in a “competitive business.”

       David and Springer signed the agreement.            According to their later

declarations, after signing the agreement, both employees declined offers to

perform repairs and vehicle conversion work from various individuals out of fear of

violating the agreement. By June 2021, both David and Springer had terminated

their employment with Freedom Vans.

       In April 2022, David and Springer (together the “former employees”),

individually and on behalf of a class of similarly situated individuals, filed a class

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No. 84867-4-I/3

action lawsuit against Freedom Vans, alleging that the employment agreement

violated RCW 49.62, a statute that largely regulates non-competition clauses in

employment contracts. In addition to damages, the former employees sought

injunctive and declaratory relief.

       Freedom Vans filed a motion for summary judgment, arguing that

prohibiting current employees from “directly or indirectly” competing with the

employer was permissible under the statute. Freedom Vans asked the court to

award fees, arguing that the former employees’ lawsuit was frivolous.

       Opposing summary judgment, the former employees argued that, since

Freedom Vans paid them less than twice the minimum wage, Freedom Vans’ “anti-

moonlighting polic[y]” violated the statute, which does not allow an employer to

prohibit its employees from “working anywhere else.” The former employees also

pointed out that the statute includes no language limiting its remedies to current

employees. See RCW 49.62.080 (providing penalties for violation of the statute

including reasonable attorneys’ fees, expenses, and costs).

       After a hearing, the trial court granted Freedom Vans’ motion, but denied its

request for attorneys’ fees. The court’s order provides, in part:

       RCW 49.62 does not restrict an employer’s right to require employee
       loyalty and avoidance of conflicts of interest during the course of
       employment consistent with the common law. RCW 49.62.070(2)(b).
       Such a restriction can be express or implied. Kieburtz & Associates
       v. Rehn, 68 Wn. App. 260, 265, 842 P.2d 985 (Div. 1 1992). Here,
       Freedom Vans LLC did nothing more than that when it required
       Plaintiff employees to sign an employment agreement which stated,
       “During employment for any reason, [NAME] will not directly or
       indirectly engage in any business that competes with FREEDOM
       VANS LLC.” Attachment 1 to Declaration of Kyleigh Rogers. This
       restriction is consistent with the common law duty of loyalty,

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No. 84867-4-I/4

       expressed in Washington caselaw as, “During the period of
       employment, an employee is not entitled to ... act in direct
       competition with his or her employer’s business.[”] See Kieburtz, 68
       Wn.App. 260, 265, citing Restatement (second) of Agency, sec. 393
       comment e (1958). As such, the employment agreement as written
       is not a violation of RCW 49.62.070, and does not provide a basis for
       Plaintiff’s claims.

       The former employees sought reconsideration, arguing that “[i]ndirect

competition is not a breach of the duty of loyalty.” Freedom Vans also sought

reconsideration of the court’s decision denying its request for fees, arguing that it

was entitled to fees under a separate provision of the agreement. The trial court

denied both motions. Both parties appeal.

                                 II.    ANALYSIS
   A. Standards of Review

       We review a trial court’s decision on a motion for summary judgment de

novo. Int’l Marine Underwriters v. ABCD Marine, LLC, 179 Wn.2d 274, 281, 313

P.3d 395 (2013). “Summary judgment is proper only where there is no genuine

issue of material fact and the moving party is entitled to judgment as a matter of

law.” Id. We “must view the evidence, and all reasonable inferences from the

evidence, in the light most favorable to the nonmoving party, and the motion should

be granted if a reasonable person could reach only one conclusion.” Dunnington

v. Virginia Mason Med. Ctr., 187 Wn.2d 629, 638, 389 P.3d 498 (2017).

       We also review issues of statutory interpretation de novo. Dep’t of Ecology

v. Campbell & Gwinn, LLC, 146 Wn.2d 1, 9, 43 P.3d 4 (2002). In doing so, we

focus on “the plain language enacted by the legislature, considering the text of the

provision in question, the context of the statute in which the provision is found,

related provisions, amendments to the provision, and the statutory scheme as a

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No. 84867-4-I/5

whole.” Lenander v. Dep’t of Ret. Sys., 186 Wn.2d 393, 403, 377 P.3d 199 (2016).

We likewise interpret the language of contracts de novo. Kim v. Moffett, 156 Wn.

App. 689, 697, 234 P.3d 279 (2010).

   B. RCW 49.62

      The legislature enacted RCW 49.62 in 2019 to promote “workplace mobility”

and to ensure that agreements that limit workplace competition are not the product

of negotiation and are reasonable. RCW 49.62.005. The legislature provided that

the statute “shall be construed liberally for the accomplishment of its purposes.”

RCW 49.62.110.

      At issue here is the statute’s provision that governs an employer’s authority

to restrict supplemental employment, RCW 49.62.070. The statute provides:

      Employees having an additional job—When authorized.

      (1) Subject to subsection (2) of this section, an employer may not
          restrict, restrain, or prohibit an employee earning less than twice
          the applicable state minimum hourly wage from having an
          additional job, supplementing their income by working for another
          employer, working as an independent contractor, or being self-
          employed. . . .

      (2) (b) This section does not alter the obligations of an employee to
          an employer under existing law, including the common law duty of
          loyalty and laws preventing conflicts of interest and any
          corresponding policies addressing such obligations.

   C. Validity of the Agreement under RCW 49.62.070

      The relevant section of the agreement that Freedom Vans required the

former employees to sign provides, in full:

      NON-COMPETE COVENANT. During employment for any reason,
      [employee] will not directly or indirectly engage in any business that
      competes with FREEDOM VANS LLC.

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No. 84867-4-I/6

       1. Directly or indirectly engaging in any competitive business
          includes, but is not limited to: (i) engaging in a business as owner,
          partner, or agent, (ii) becoming an employee of any third party
          that is engaged in such business, (iii) becoming interested
          directly or indirectly in any such business, or (iv) soliciting any
          customer of FREEDOM VANS LLC for the benefit of a third party
          that is engaged in such business. [employee] agrees that this
          non-compete agreement will not adversely affect [employee’s]
          livelihood.

       The former employees contend that the trial court misapplied Washington

law when it concluded that the agreement does not violate RCW 49.62.070. It is

undisputed that the former employees were paid less than twice the applicable

minimum wage, and therefore, according to the former employees, Freedom Vans’

restriction on employees’ ability to obtain outside employment in section (ii) is

presumptively unlawful under RCW 49.62.070(1). 1

       For its part, Freedom Vans contends that the trial court correctly concluded

that the challenged provision merely encompasses the common law duty of loyalty

owed by an employee as it existed when the statute was enacted, and the

restriction is therefore permissible under RCW 49.62.070(2)(b). 2

1 There is no claim before us that the agreement’s prohibitions on (i) owning or
controlling a competitive business, (iii) having a financial interest in such a
business, or (iv) soliciting the employer’s customers for the benefit of a competitive
business, are inconsistent with the common law duty of loyalty. And while it
appears that employment with a direct competitor would lead to conflicts of
interest, no party argues that the restriction at issue is permissible because it
conforms to existing law as to an employee’s obligation to avoid conflicts of
interest. Thus, on this briefing, we will not further consider the merits of the “conflict
of interest” exception.
2 While it is true that the former employees’ positions have shifted during the course

of this litigation, they have sufficiently preserved their claim of error relating to the
validity of the employment agreement under RCW 49.62 to warrant review, and
we therefore reach the merits of their claims on appeal. We further note that
Freedom Vans concedes on appeal that the former employees have standing to

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No. 84867-4-I/7

        The statute expressly preserves, but does not codify or explicate, the duty

of loyalty. Our resolution of the parties’ dispute, first, centers on the scope of the

duty and, secondarily, whether the duty may be memorialized in policy to require

current employees to refrain from indirectly competing with the principal by

accepting employment with a “competitive business.”

        According to the former employees, this court’s decision in Kieburtz &

Assoc., Inc. v. Rehn, 68 Wn. App. 260, 265-66, 842 P.2d 985 (1992) and the

Restatement (Second) of Agency § 393 (Am. L. Inst. 1958) set forth the “existing

law” on the common law duty of loyalty when the statute was enacted. The former

employees maintain that, under these and subsequent authorities, the duty of

loyalty prohibits only “direct” competition with an employer, such that merely

working for a competing business in unrelated “job duties” does not violate the

duty.

        In Kieburtz, an employer sued two employees for tortious interference after

they solicited work for their own separate business from one of the employer’s

clients.   Kieburtz, 68 Wn. App. at 264. In reversing the trial court’s dismissal of

the claim, this court held that a jury could reasonably conclude that the employees’

actions violated a duty of loyalty to their employer. Id. at 267. The court held,

“[d]uring the period of his or her employment, an employee is not ‘entitled to solicit

customers for [a] rival business ...’ or to act in direct competition with his or her

argue that the agreement at issue impermissibly restricted competition. See
Walker v. Munro, 124 Wn.2d 402, 411, 879 P.2d 920 (1994) (to establish standing
under the Uniform Declaratory Judgment Act, a party must present a justiciable
controversy based on allegations of harm personal to the party that are substantial
rather than speculative or abstract).

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No. 84867-4-I/8

employer’s business.” Id. at 265 (quoting RESTATEMENT (SECOND) OF AGENCY §

393 cmt. e (AM. L. INST. 1958)) (emphasis added).        In so holding, the Kieburtz

court expressly and principally relied on the description of the duty of loyalty set

forth in the main portion of Section 393 of the Restatement (Second): “‘[u]nless

otherwise agreed, an agent is subject to a duty not to compete with the principal

concerning the subject matter of his agency.’” Id. (quoting the RESTATEMENT

(SECOND) OF AGENCY § 393).

       The former employees claim that Kieburtz and Section 393 thereby implicitly

distinguish between “direct” and “indirect” competition, and conclude that only

direct competition with an employer contravenes an employee’s duty of loyalty,

where “direct” means doing the same “job duties” for the competitor.

       The former employees cite numerous cases that restate the holding of

Kieburtz, but none of that authority supports the position that the duty of loyalty is

limited to prohibiting only direct competition or solicitation, and none defines the

term “subject matter of the [employee’s] agency” as an employee’s “job duties.” In

other words, Kieburtz and its progeny on their face still permit the common law

duty of loyalty to preclude assisting another to compete with the principal employer

“indirectly” or in ways that are not tied simply to an employee’s job description, as

long as they are tied to the “subject matter” of the employee’s agency.

       The former employees also rely on some of the comments to Section 393

to argue that “the subject matter of the employee’s agency” is confined to the

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No. 84867-4-I/9

employee’s specific “job duties.”3 But the comments to Section 393 do not so limit

the scope of that agency and are susceptible to different interpretations. And the

former employees’ reading of the “subject matter” of the agency is arguably

inconsistent with other related Restatement provisions.           See RESTATEMENT

(SECOND) OF AGENCY § 394 (duty not to act for persons whose interests conflict

with those of the principal in matters concerning the agency); RESTATEMENT (THIRD)

OF AGENCY § 8.04 (AM. L. INST. 2006) (agent has a duty to avoid taking action on

“behalf or otherwise assisting the principal’s competitors”). 4

       In turn, we conclude that the more natural reading of Section 393 is that the

duty of loyalty requires a current employee to refrain from competing with the

employer with respect to the precise (or “direct”) subject matter of the employer’s

mission, whether that means the employee is performing the same “job duties” or

not. In other words, the duty is a duty not to compete in the principal’s direct

commercial area, and whether that duty is violated does not turn on the employee’s

3 For instance, one of the comments the former employees rely on provides that

the employee may use knowledge independently acquired “for all purposes except
that of competition with the principal in matters entrusted to him.” RESTATEMENT
(SECOND) OF AGENCY, cmt. c.
4 The former employees aver that no published Washington decisions have cited

the Restatement (Third) § 8.04 or the Restatement (Second) § 394 in the context
of the duty of loyalty. But this court has relied on Section 8.04 in unpublished
decisions to support the proposition that the duty of loyalty “prevents a current
employee from competing with the employer or assisting others to compete with
the employer.” Steve Cole Salon, LLC v. Salon Lotus, No. 61342-1-I, slip op. at
11 (Wash. Ct. App. Feb. 9, 2009) [https://perma.cc/J4L5-HGGK] (citing
RESTATEMENT (THIRD) OF AGENCY § 8.04 (AM. L. INST. 2006)). Moreover, agency
principles articulated in the Restatement are, in general, relevant to employment
relationships. Kieburtz, 68 Wn. App. at 265. And like the employees in Kieburtz,
the former employees offer no rationale that would support a decision to reject
these particular provisions. Id. at 266.

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No. 84867-4-I/10

job description.

       More importantly, while the parties’ arguments are confined to the scope of

the duty of loyalty, we are not so limited because, as explained, we review the

statutory and contractual issues de novo. Kim, 156 Wn. App. at 697. Furthermore,

we may affirm the trial court’s decision on summary judgment on any ground

supported by the record, even if the trial court did not consider the argument. See

LaMon v. Butler, 112 Wn.2d 193, 200-01, 770 P.2d 1027 (1989).

       Here, the statute preserves not only existing legal obligations, including the

common law duty of loyalty and obligation to avoid conflicts of interest, but also

“any corresponding policies addressing such obligations.” RCW 49.62.070(2)(b)

(emphasis added). Whether or not the common law duty of loyalty itself requires

that current employees avoid working in any capacity for a direct competitor of their

current employer, the agreement is undoubtedly a policy that “addresses”

obligations imposed by the duty of loyalty.

       That is, Freedom Vans chose to define its current employees’ duty of

loyalty, by policy, to prohibit employment, in any capacity, with a competing

business. And even assuming, as the former employees contend, that Freedom

Vans’ policy is broader than the common law duty of loyalty, Freedom Vans’ policy

is entirely consistent with the duty under existing law and advances the same

objective. The purpose of the duty of loyalty is to prevent competition between an

employer and its employees in the employer’s sphere of business. In the former

employees’ view, the duty of loyalty merely prohibits employees from “personally

competing” with a current employer. But Freedom Vans’ policy simply does not

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No. 84867-4-I/11

allow employees to do indirectly, through assistance to a competing business,

what they undisputedly may not do directly.

       Moreover, the policy at issue furthers the objectives of the duty of loyalty

because a competing business will benefit, directly or indirectly, from the

knowledge and skills acquired or refined at the principal place of employment. And

the former employees’ view that furthering a competing employers’ business

depends on identity of job duties or title does not reflect the reality of the workplace.

       For instance, a Pepsi marketing executive’s loyalty would undoubtedly be

compromised (even setting aside conflict of interest issues) if that executive also

moonlighted as an accounting executive for Coca Cola. This is so because roles

and duties in the workplace are often fluid and overlapping. And in many cases,

knowledge, skills, and context are applicable to multiple positions. At a minimum,

a policy preventing a current employee from working for a direct competitor

“addresses” the duty of loyalty and is consistent with that duty.

       In sum, notwithstanding RCW 49.62.070(1), RCW 49.62.070(2)(b) allows

an employer to restrict its employees’ outside employment insofar as the

restrictions are consistent with existing law, including the duty of loyalty, duty to

avoid conflicts, and policies that secure and further those legal obligations.

Policies do and may vary, depending on context.             The restriction prohibiting

employees from obtaining employment with competing businesses does not

contravene the provisions of the statute or its purpose.

   D. Cross Appeal—Attorneys’ Fees

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No. 84867-4-I/12

      In its cross appeal, Freedom Vans challenges the trial court’s decision

denying attorney fees under a provision of the agreement which provides:

      In the event of a dispute between the parties, the parties hereby
      agree that the prevailing party shall be entitled to reasonable attorney
      fees and costs incurred as a result of the dispute.

      In denying reconsideration, the superior court explained that the former

employees raised claims and sought damages under RCW 49.62. “Thus, while

the employment agreement was the subject of the dispute, Plaintiff’s claims ‘arose

out’ of asserted rights under RCW 49.62, rather than the agreement itself.” And

the court noted that the attorneys fee provision under the noncompetition statute,

RCW 49.62.080, provides only for award of fees to prevailing employees, not

employers.

      Citing RCW 4.84.330, Freedom Vans argues that attorney fees to the

prevailing party under the contractual provision are mandatory. Freedom Vans

contends, contrary to the superior court’s ruling, that the action arose out of the

contract and seeks fees on appeal under the same contract provision.

      We disagree with Freedom Vans for two reasons. First, the contractual fee

provision Freedom Vans relies on is bilateral and “[b]y its terms, RCW 4.84.330

applies only to contracts with unilateral attorney fee provisions.” Kaintz v. PLG,

Inc., 147 Wn. App. 782, 786, 197 P.3d 710 (2008). Second, as the trial court ruled,

the former employees’ cause of action arose out of RCW 49.62.070 and the

remedies provided by the statute, rather than out of the agreement. Like the

plaintiff in LaCoursiere v. CamWest Dev. Inc., 181 Wn.2d 734, 748, 339 P.3d 963

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No. 84867-4-I/13

(2014), the employees’ claim was “grounded exclusively” in the statute and they

made no claims seeking to enforce the employment agreement.

                             III.   CONCLUSION

      We affirm the court’s order on summary judgment and its ruling on fees, and

deny fees on appeal. Affirmed.

WE CONCUR:

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