From new legislative proposals relating to the federal estate tax to the use of vehicle purchases as a Medicaid spend-down strategy and the Treasury Department’s suspension of the enforcement of the Corporate Transparency Act (CTA) against US citizens and companies, we have recently seen significant developments in estate planning, elder and special needs law, and business law.

To ensure that you stay abreast of these changes, we have highlighted some noteworthy developments and analyzed how they may impact your estate planning, elder and special needs law, and business law practices.

Estate Planning

House and Senate Introduce Bills to Repeal Estate and Generation-Skipping Transfer Taxes; House Passes Budget Resolution

H.R. 1301, 199th Cong. (2025)

On February 13, 2025, Representative Randy Feenstra (R-Iowa) introduced the Death Tax Repeal Act in the House; US Senate Majority Leader John Thune (R-South Dakota) introduced companion legislation in the Senate. If enacted, the legislation would permanently repeal the federal estate tax and generation-skipping transfer tax, impose a permanent lifetime gift tax exemption of $10 million, reduce the federal gift tax from 40 to 35 percent, and retain the full step-up in basis for assets transferred at death. If the legislation is enacted, the estate and generation-skipping transfer (GST) taxes will not apply to generation-skipping transfers or the estates of decedents who die on or after the date of enactment.

In addition, on February 25, 2025, the House passed a budget resolution, which is the first step toward extending or making permanent the current doubled estate and gift tax exemption amount and other tax cuts scheduled to expire at the end of 2025. If the Senate also approves the budget resolution, a reconciliation bill that extends or expands the expiring tax cuts is likely. 

Takeaways: It is too early to predict the outcome of these initiatives. Learn more about the proposed estate tax repeal bills and their implications by viewing Robert Keebler’s recent webinar, Proposed Estate Tax Repeal: What It Could Mean for Your Clients and Your Practice. WealthCounsel will continue to monitor legislative developments and provide updates as appropriate.

Are you aWealthCounsel member? Click here to watch the webinar.

IRS Issues 2025 Exempt Organization Revenue Procedures for Determination Letters

Rev. Proc. 2025-5, 2025-01 I.R.B. 262 (Jan. 3, 2025)

On January 3, 2025, the IRS issued Revenue Procedure 2025-5, its annual update of revenue procedures that may affect exempt organizations.

Revenue Procedure 2025-5, section 3.01(1) clarifies that an organization formerly recognized as described in I.R.C. § 501(c)(3) will continue to be treated as an applicable tax-exempt organization subject to I.R.C. § 4958 (imposes an excise tax on excess benefit transactions between a disqualified person and an applicable tax-exempt organization) for five years after ceasing to be exempt as described in section 501(c)(3) unless it is a private foundation or a governmental unit or affiliate.

Revenue Procedure 2025-5 also addresses which organizations are eligible to use Form 1023-EZ, Streamlined Application for Recognition of Exemption, to apply for recognition of exemption under I.R.C. § 501(c)(3). Under section 6.05(1), organizations that meet the following criteria are eligible: 

• Annual gross receipts are projected to be $50,000 or less in the current and next two taxable years
• Annual gross receipts of $50,000 or less in each of the past three years of the organization’s existence
• Total assets not exceeding $250,000

Section 6.05(2) also specifies that certain organizations seeking recognition of exemption under I.R.C. § 501(c)(3) are ineligible to submit Form 1023-EZ; these organizations must use Form 1023. Revenue Procedure 2025-5 adds the following to its list of organizations ineligible to use Form 1023-EZ:

• Organizations—or their successors—whose tax-exempt status was previously revoked except for automatic revocation for failure to file a Form 990 series return or notice for three consecutive years
• Organizations previously denied an exemption
• Organizations previously determined to be ineligible to file Form 1023-EZ
• Organizations conducting activities involving controlled substances prohibited by federal law
• Organizations engaged in exchanging, creating, or distributing digital assets

In addition, Revenue Procedure 2025-5 clarifies which organizations may use Form 1023-EZ to apply for reinstatement after their exempt status has been automatically revoked for failure to provide required annual returns or notices for three consecutive years pursuant to Revenue Procedure 2014-11 based on several factors, including their size, the number of times their status has been automatically revoked, and the timeliness of their filing for reinstatement.

Takeaways: Those interested in setting up small nonprofits often use Form 1023-EZ. Revenue Procedure 2025-5 provides guidance about which nonprofits are eligible to use the simplified form and which ones are precluded from doing so.

Michigan Slayer Statute Does Not Prevent Transfer of Trust Funds to Remainder Beneficiary Who Unsuccessfully Solicited the Murder of Primary Beneficiary

In re Clark Trust, No. 366592, 2025 WL 227548 (Mich. Ct. App. Jan. 16, 2025)

On November 29, 2017, Donald Clark created an irrevocable trust for the benefit of himself and his wife, Elaine. The trust named Michael Mooney as trustee. Elaine was the primary beneficiary; her son Donnie would become the sole beneficiary upon her death. If the trust was not completely distributed by Donnie’s death, the remainder would be distributed to Michael.

Donald died in December 2017. In March 2018, the probate court removed Michael as trustee to avoid a conflict of interest. Donnie died in July 2021, leaving Elaine as the sole beneficiary and Michael holding a remainder interest. Rene Hofacer was named Elaine’s durable power of attorney in August 2021. Elaine died in December 2022. Michael then petitioned the court to remove the trustee and close the probate file. 

Rene opposed the petition, alleging that there were outstanding issues involving the trust, including disbursements for her services as the holder of Elaine’s power of attorney. In addition, she asserted that the trust needed supervision because Michael had been charged in a separate criminal proceeding for the solicitation of Elaine’s and Donnie’s murders. The person who Michael had solicited to commit the murders had reported him to the police, and the murders did not take place. Charges against Michael were then dropped when the only witness died prior to trial, and he was never tried or convicted. Rene also asserted that Michigan’s slayer statute applied and precluded the transfer of the trust’s assets to Michael. 

The probate court granted Michael’s petition to remove the trustee and close the probate file after the trust made several additional payments. The court also declined to apply the slayer statute, holding that Elaine’s and Donnie’s deaths were from natural causes and not the result of foul play as no murders had been committed, and that Michael had not been convicted of abuse, neglect, or exploitation of Elaine or Donnie. Rene appealed.

On appeal, one of the main issues addressed by the Michigan Court of Appeals was the application of the slayer statute, Mich. Comp. Law § 700.2803. It provides the following: 

An individual who feloniously and intentionally kills or who is convicted of committing abuse, neglect, or exploitation with respect to the decedent forfeits all benefits under this article with respect to the decedent’s estate . . . [because the killing or conviction revokes the] disposition or appointment of property made by the decedent to the killer or felon in a governing instrument.

Mich. Comp. Law § 700.2803(1). 

After a de novo review, the court determined that the statutory language was plain and unambiguous. The court stated that it was undisputed that the two actions that triggered the statute’s application—felonious and intentional killing or a conviction of abuse, neglect, or exploitation of the decedent—had not occurred and, despite the fact that Michael had been charged with soliciting the murders of Elaine and Donnie, he was never tried or convicted. As a result, the court affirmed the probate court’s ruling.

Takeaways: The court’s decision in In re Clark Trust results in an outcome that the trust settlor almost certainly would not have intended, i.e., the distribution of trust funds to an individual who solicited the murder of the trust’s primary beneficiaries. Wealth Docx includes provisions in its Revocable Living Trust to prevent such an outcome by disinheriting a beneficiary who is a slayer even if they are not tried or convicted. 

Plaintiff Who Assigned Rights to Litigation to His Revocable Living Trust Had Standing to Sue as Trustee

Correa v. Tovar-Restrepo, No. 3D23-1265, 2025 WL 541982 (Fla. 3rd Dist. Ct. App. Feb. 19, 2025)

In 2015, Jose Tovar created three revocable living trusts to hold substantial assets. He made the trusts irrevocable in 2016. In 2018, Jose, individually and as trustee of the 2015 trusts, brought a suit against his daughters and an entity owned by one of them to invalidate his actions, making the 2015 trust irrevocable; he alleged several causes of action, including undue influence, fraud, mistake, exploitation of an elderly person, and breach of fiduciary duty. Jose died in 2020 before the case was resolved. Maria Correa was substituted as plaintiff based on a previously undisclosed trust Jose had created in June 2018—the Colspak Revocable Trust—of which she was Jose’s successor trustee and to which Jose had assigned his causes of action against his daughters.

Jose’s daughters moved for summary judgment, arguing that Jose had lacked standing when he commenced the action because he had previously assigned the rights to the litigation to the Colspak Revocable Trust and that Maria, as successor trustee, could not cure the lack of standing because the statute of limitations had run. The trial court granted summary judgment in favor of Jose’s daughters, concluding that Jose had lacked standing to initially commence the lawsuit and that Maria could not cure the lack of standing by being substituted as plaintiff.

On appeal, the Florida District Court of Appeals reversed the trial court’s ruling, relying on prior case law establishing that a trustee is the real party in interest with the authority to bring an action for the trust. Further, Jose did not have to allege that he was suing in his capacity as trustee of the Colspak Revocable Trust. The court determined that, contrary to Jose’s daughters’ contention, Jose’s assignment of his rights to the Colspak Revocable Trust was irrelevant: he had merely assigned his rights to himself in a different capacity. As a result, Jose continued to have standing to sue, and his daughters were not prejudiced because the underlying claims and defenses remained the same. Because Jose had standing, his successor trustee, Maria, also had standing to continue the action.

Takeaways: Clients engaged in a lawsuit may wish to assign their rights to litigate the claims to a revocable living trust to permit a successor trustee to continue to pursue the matter. As noted, because Jose was the trustee of the Colspak Revocable Trust, he was the real party in interest, and his failure to assert that he was acting in his capacity as trustee was irrelevant. 

Elder Law and Special Needs Law

Use of Medicaid Recipient’s Proceeds from Sale of Home to Buy Porsche Jointly Owned with Son Was Subject to Transfer-of-Asset Penalty—But the Case Was Moot 

Singleton v. Cabinet for Health and Fam. Servs., No. 2024-CA-0879-MR, 2025 WL 569265 (Ky. Ct. App. Feb. 21, 2025)

Yasuko Singleton began receiving Medicaid benefits in March 2021. She lived in a long-term care facility paid for by Medicaid. Yasuko owned her home jointly with her husband, who had predeceased her, but she sold the home in May 2022. Their son Edwin inherited a quarter interest in the property, and after Edwin received his portion of the sales proceeds, she deposited the remaining amount, $52,340, into her bank account. In June 2022, Yasuko had a trade-in value for a 2020 Land Rover titled in her name.

In June 2022, Edwin used the trade-in value of the Land Rover and the home sale proceeds to purchase a 2022 Porsche Cayenne for more than $100,000. The Porsche was titled “Singleton, Edwin or Singleton, Yasuko,” but Edwin kept it in his home state of Alabama, and there was no evidence Yasuko benefited from her part ownership in the vehicle. Singleton v. Cabinet for Health and Fam. Servs., No. 2024-CA-0879-MR, 2025 WL 569265, at * 1 (Ky. Ct. App. Feb. 21, 2025). Yasuko informed Kentucky’s Cabinet for Health and Family Services (Cabinet) of the transfer of assets and received a letter notifying her that a disqualification penalty would be imposed from June 1, 2022, through September 8, 2022, because she had made a prohibited transfer of resources. She requested and received a hearing contesting the penalty. Before the hearing, the Cabinet filed a motion to dismiss the proceeding as moot because it was legally prohibited from discontinuing or recouping any of Yasuko’s Medicaid benefits under the Families First Coronavirus Response Act (FFCRA). The hearing officer denied its motion because a request for a hearing may only be dismissed if the applicant withdraws it (42 C.F.R. § 431.223). On November 3, 2023, the Cabinet issued a final order concluding that a prohibited transfer had occurred and that the penalty was warranted.

Under Kentucky’s Medicaid regulations, the transfer of resources penalty imposed by the Cabinet did not include the trade-in value of the Land Rover, which was an excluded resource. Rather, the transfer penalty was based only on half of the value of the cash Yasuko had received from the sale of her house, which had been used to pay the remaining balance for the Porsche: the Cabinet attributed half of that remaining balance to Yasuko and half to Edwin. The Cabinet reasoned that when the Porsche was purchased, Yasuko and Edwin became joint owners, resulting in a transfer to Edwin. Edwin did not own an interest in Yasuko’s assets but gained an interest in the Porsche, which was a gift from Yasuko to Edwin. Yasuko sought judicial review of the Cabinet’s decision. The circuit court affirmed the Cabinet’s decision, and Yasuko appealed.

The Kentucky Court of Appeals disagreed with Yasuko’s argument that the Cabinet should have considered jointly held resources pursuant to 42 U.S.C. § 1396p(c)(3) as required by 907 Ky. Admin. Reg. 20:030 section 1(4). Rather, the court opined that 42 U.S.C. § 1396p(c)(3) governs changes in the control of jointly held property, not the use of solely owned resources in the creation of jointly owned property. In the present case, Yasuko allowed the proceeds of the sale of her home, which she solely owned, to be paid toward a vehicle that she and Edwin owned jointly, thus giving up some control of the value represented by that cash. The title of the Porsche (“Singleton, Edwin or Singleton, Yasuko”) permitted Edwin to sell it without her consent and retain the sale proceeds. In addition, although the Porsche was owned jointly, Edwin kept it in another state, further reducing Yasuko’s control over it.

The court declined to rule on the merits of Yasuko’s appeal, however, holding that the case was moot: Yasuko had not suffered an injury that the court could redress because her Medicaid benefits were never suspended due to the COVID-era protections imposed by the FFCRA. The court declined to issue an “advisory opinion” on Yasuko’s hypothetical argument that now that the FFCRA has expired, she and other nursing home residents who do not have driver’s licenses and thus cannot purchase auto insurance—a prerequisite for purchasing a vehicle—are unable to purchase vehicles with joint titles without losing their Medicaid benefits. Singleton, supra at *4. The court noted that although the issue of how Medicaid eligibility generally can be maintained despite asset transfers is an important public question, it would not address those issues in a case that is otherwise moot.

Takeaways: An individual can generally only have countable assets of $2,000 for Medicaid to pay for long-term care. However, in determining eligibility for Medicaid, one vehicle is a noncountable asset. Purchasing a vehicle in a spend-down is an allowable Medicaid crisis planning strategy. As noted in the court’s opinion in Singleton, the transfer-of-asset penalty would have been upheld if the court had reached the case’s merits because a portion of Yasuko’s available assets were used to purchase a vehicle in which she did not retain full ownership. The transfer penalty imposed on Yasuko (albeit never enforced) most likely would have been avoided altogether by using the trade-in value of the Land Rover and the sales proceeds of her home to purchase the Porsche solely in her name.

Medicaid Applicant Who Failed to Dispute Gross Monthly Income in Administrative Hearing Could Not Raise Issue on Appeal

I.M. v. Div. of Med. Assistance & Health Servs., No. A-0150-23, 2025 WL 384366 (N.J. Super. Ct. Feb. 4, 2025)

I.M., who suffered from various medical conditions, resided at Sunnyside Manor, an assisted living facility. Her son, who was her agent under a power of attorney, applied for Medicaid benefits on her behalf. The application included financial information and showed that I.M. had created an irrevocable qualified income trust (QIT), often called a Miller Trust. The Monmouth County Division of Social Services (County) requested I.M. to provide Sunnyside’s room and board rate, her medical costs, and a verification of financial transactions. In response to a call from the County, Sunnyside’s administrator provided a letter indicating that I.M.’s medical expense rate was $75 per day. The County determined that I.M. was ineligible for Medicaid because her total monthly gross income of $8,993.45 was sufficient to pay Sunnyside’s daily charge. I.M.’s attorney sought clarification from Sunnyside about the daily rate and received a response from another Sunnyside employee indicating that $75 per day was incorrect. I.M. sent invoices to the County showing a variety of charges, including room and board, exceeding $75 per day. She requested and received an administrative hearing. The administrative law judge and the Assistant Commissioner for the Division found that I.M.’s medical expenses were $75, her room and board were precluded from reimbursement because Medicaid does not cover assisted living room and board, and her income far exceeded Medicaid’s income cap. 

I.M. appealed, asserting that the Assistant Commissioner and administrative law judge had erred in determining her daily medical expenses and had incorrectly determined her monthly income because her pension and annuity income were deposited into a QIT meeting the requirements of 42 U.S.C. § 1396p(d)(4)(B) and thus should not have been considered in calculating monthly income, placing her below the Medicaid eligibility limit.

On appeal, the court found that I.M. had failed to dispute her gross monthly income before the County or the administrative law judge and refused to disturb the Assistant Commissioner’s final decision. In addition, the court found no error in the Assistant Commissioner's determination that I.M.’s medical cost was $75 per day and that additional amounts she paid for room and board should not be included as medical expenses.

Takeaways: Upon receiving an adverse Medicaid decision, an attorney must zealously assert any argument as to the decision’s erroneousness to avoid forfeiting those arguments when raised on appeal. If I.M. had disputed her gross monthly income before the County or administrative law judge, she would likely have been successful on the merits due to pension and annuity income being held in her QIT, which had been created to make income exceeding New Jersey’s Medicaid income cap noncountable for Medicaid purposes. With respect to the amount of I.M.’s medical expenses, practitioners must be diligent in reviewing the evidence provided to Medicaid agencies by third parties, such as I.M.’s assisted living facility, to ensure that the Medicaid application is not put at risk.  

Business Law

Treasury Suspends Enforcement of CTA Against US Citizens and Companies

On March 2, 2025, the US Treasury Department announced that not only will it not impose penalties or fines under the current regulatory deadlines for the CTA, but it will also not enforce any penalties or fines against US citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect. 

On February 27, 2025, FinCEN announced that companies that do not file or update their beneficial ownership information (BOI) reports pursuant to the CTA by the current deadlines—March 21, 2025, for most companies—will not be fined or penalized and that it would issue an interim rule establishing extended deadlines. However, in its March 2 announcement, the Treasury Department stated that it now plans to issue a proposed rule that will narrow the scope to foreign reporting companies only.

Takeaways: Although the Treasury Department’s March 2 announcement provides relief for US citizens and companies during the Trump Administration, a future administration could once again propose and implement regulations enforcing the CTA against them. Please note that on January 15, 2025, the Repealing Big Brother Overreach Act was reintroduced in the US Senate and House of Representatives. If enacted, the bill would repeal the CTA. In addition, litigation regarding the constitutionality of the CTA remains pending, most notably in Smith v. U.S. Dept of the Treasury, No. 6:24-cv-00336 (E.D. Tex. Feb. 17, 2025) and Texas Top Cop Shop v. McHenry, No. 4:24-cv-00478 (E.D. Tex. Dec. 3, 2024), as well as in several other federal district courts. WealthCounsel members may visit the CTA page on the member website for additional information and updates.

Competitor’s Use of Westlaw’s Headnotes to Train New AI Search Tool Was Not Fair Use

Thomson Reuters Enter. Ctr. GMBH v. Ross Intel., No. 1:20-cv-613-SB, 2025 WL 458520 (D. Del. Feb. 11, 2025)

Thomson Reuters owns Westlaw, a legal research platform that users can access for a fee, and it owns copyrights in Westlaw’s copyrightable material. In addition to providing case law, statutes, and other content, Westlaw contains editorial content and annotations, including Westlaw headnotes. Ross, a new competitor to Westlaw, created a legal research search engine that uses artificial intelligence. Ross had attempted to license Westlaw’s content to train its artificial intelligence (AI) search tool. However, Westlaw refused because Ross was a competitor. Ross then obtained training data from another company, LegalEase, which provided lawyers’ compilations that were built using Westlaw headnotes. Thomson Reuters brought an action against Ross for copyright infringement. It filed motions for summary judgment based on copyright infringement and the inapplicability of the fair use defense. 

The court held that, to establish that Ross directly infringed its copyrights, Thomson Reuters had to show (1) that it owned a valid copyright and (2) that Ross had copied protected elements of the copyrighted work. Because the US Constitution limits copyright protection to original works, showing originality is central to establishing a valid copyright. The threshold for originality is very low, however, requiring only a “minimal degree of creativity.” Thomson Reuters Enter. Ctr. GMBH v. Ross Intel., No. 1:20-cv-613-SB, 2025 WL 458520, at *3 (D. Del. Feb. 11, 2025). Although a judicial opinion is not copyrightable, a Westlaw headnote is “a short, key point of law chiseled out of a lengthy judicial opinion . . . and thus have original value as individual works.” Id. In addition, Westlaw’s Key Number system is original, as Thomson Reuters independently created it. Therefore, the headnotes and key number system were protected by copyright law.

The court rejected Ross’s affirmative defense of fair use in part because Ross’s use was commercial. In addition, Ross’s use of the Westlaw headnotes was not transformative because the purpose of its use was to aid it in developing a competing legal research tool that provides judicial decisions that have already been written, similar to Westlaw’s headnotes. The court stated that “[b]ecause the AI landscape is changing rapidly, I note for readers that only non-generative AI is before me today.” Id. at *8. 

In addition, the effect of Ross’s copying on the market for the original work or derivative markets, such as a potential market for AI training data, weighed in favor of Thomson Reuters because Ross had not met its burden to show that its use would result in a research platform that served a different purpose than Westlaw’s; to the contrary, Ross intended to use Westlaw’s headnotes to develop a market substitute for Westlaw. Further, there was a potential market for Thomson Reuters to use its data to train AI tools or sell the Westlaw headnotes to train AI tools. Ross did not meet its burden of proving that such markets did not exist and would not be affected by its copying of Westlaw’s headnotes. Other factors favoring Ross were not as weighty as those favoring Thomson Reuters. As a result, the court granted summary judgment in favor of Thomson Reuters on direct copyright infringement and the inapplicability of Ross’s defenses, including its assertion of fair use.

Takeaways: The court’s decision in Thomson Reuters is important to businesses interested in using copyrighted data to train AI models. The court concluded that copying works or data to train an AI tool is not a fair use of another’s copyrighted work, particularly to develop a similar competitive product. Because Ross’s AI tool did not transform Thomson Reuter’s data, it was not a generative AI tool. Copyright cases involving generative AI tools are more complicated because those tools are intended to write new content. 

Notably, on January 29, 2025, the United States Copyright Office released part 2 of a report addressing the copyrightability of outputs created using generative AI. The report concludes that content created by generative AI is only entitled to copyright protection if it has a human author who has determined sufficient expressive elements. For example, when a human inputs their own copyrightable work into an AI tool and that work can be perceived in the output, their copyright in the AI-generated output would protect the perceptible human expression. Merely entering a prompt in an AI tool is not enough human control to make the user an author of AI-generated content entitled to copyright protection of that content.

Noncompete Agreement Prohibiting Low-Wage Workers from Moonlighting for Competitor Must Be Evaluated for Reasonableness

David v. Freedom Vans, LLC, 562 P.3d 351 (Wash. Jan. 23, 2025)

Freedom Vans LLC is a business that converts vans into mobile houses. It employed Jeremy David and Mark Springer to install components in the vans. Neither Jeremy nor Mark earned more than twice the minimum wage during their employment with Freedom Vans. Freedom Vans required Jeremy and Mark to sign noncompete agreements prohibiting them from directly or indirectly engaging in any business that competed with Freedom Vans during their employment, including becoming an employee of a competitor. 

They left Freedom Vans in 2021 and filed a class action lawsuit against it in 2022, alleging that the noncompete agreement violated Wash. Rev. Code § 49.62. Freedom Vans filed a motion for summary judgment asserting that Wash. Rev. Code § 49.62 did not restrict an employer’s right to require employee loyalty during the course of their employment by prohibiting them from providing any kind of assistance to competitors. The superior court granted Freedom Vans’ motion, and the Washington Court of Appeals affirmed.

The Washington Supreme Court reviewed the ruling granting the motion for summary judgment against Jeremy and Mark de novo, finding that the scope and application of Wash. Rev. Code § 49.62 was an issue of statutory interpretation and, thus, a question of law. Wash. Rev. Code § 49.62.070 prohibits employers who pay their employees less than twice the state minimum wage from restricting those employees’ ability to have another job. However, it also states that it “does not alter the obligations of an employee to an employer under existing law, including the common law duty of loyalty.” Wash. Rev. Code § 49.62.070(2)(b). The court recognized that Wash. Rev. Code § 49.62.005 required that the provisions, intended to facilitate workforce mobility and protect employees and independent contractors, be liberally construed and exceptions be narrowly construed. 

The court noted that this case was one of first impression because of the lack of previous cases addressing the application of the duty of loyalty or its scope in relation to Wash. Rev. Code § 49.62. The court ruled that barring employees from providing any kind of assistance to their employer’s competitor exceeds a narrow construction of the duty of loyalty and is contrary to the express legislative goal of protecting low-wage employees who may need to have multiple jobs to support themselves and their families. The duty of loyalty is not eliminated by the narrow construction but is subjected to the reasonableness standard imposed by common law. Reasonableness must be interpreted in light of the statute’s express intent. In addition, reasonableness is determined on a case-by-case basis in light of the facts and provisions of the noncompete agreement and could include factors such as the employer’s need to protect its business or goodwill, whether the restraint on competition is reasonably necessary, and whether enforcing the noncompete agreement would violate public policy. As a result, the court reversed and remanded the case to the superior court for a determination of whether Freedom Vans’ noncompete agreement was reasonable and enforceable in light of the statutory intention to protect low-wage workers.

Takeaways: An increasing number of states have enacted statutes restricting the use of noncompete agreements under certain circumstances, including for low-wage workers. Washington’s statute is unusual in that it prohibits noncompete agreements that restrain employees from competing against their current employers, with several exceptions as discussed above. The court’s decision may lead to additional litigation in Washington because enforceability in the context of low-wage workers must be evaluated on a case-by-case basis to determine if the noncompete is reasonable. Employers should review their noncompete agreements for reasonableness to reduce the risk of litigation. Notably, the Federal Trade Commission, in its April 2024 Non-Compete Clause Final Rule, currently subject to a nationwide injunction (see our September 2024 monthly recap), expressly declined to extend its ban on noncompete agreements for most workers to restrictions on concurrent employment. On January 3, 2025, HB 1155 was introduced in the Washington state legislature. If enacted, the bill would amend Wash. Rev. Code § 49.62.005 and § 49.62.010 to expand the definition of noncompetition covenants and prohibit all employer-employee noncompetition agreements and forfeiture-for-competition agreements.