Washington just made equity clawbacks illegal. Check your vesting docs

Washington just did something no state had done this directly: it made the equity clawback a non-compete. If your vesting documents say a departing employee has to forfeit or repay their equity for going to work at a competitor, that clause is on track to become void and unenforceable in Washington.

Founders spend a lot of energy on the federal non-compete drama and miss the state laws that actually bind them. This one deserves attention, because it reaches past the classic “you can’t work for a competitor” clause and into the equity documents almost every startup uses.

What the law actually does

On March 23, 2026, Washington Governor Bob Ferguson signed Engrossed Substitute House Bill 1155. It takes effect June 30, 2027. Two things about it matter to founders.

First, it’s a near-total ban. Washington already restricted non-competes, but only above a salary threshold. The new law repeals that threshold entirely and makes all non-competition covenants void and unenforceable, regardless of what someone earns.

Second, and this is the part that reaches your cap table, it expands the definition of a non-compete to include forfeiture and clawback provisions. The statute now sweeps in any provision that makes an individual, in its words, “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.”

Equity is compensation. So a clause that forces someone to forfeit vested shares or repay gains because they went to work somewhere else is now treated as a non-compete, and non-competes are void.

Competition triggers vs. plain vesting

This is where you have to be precise, because it’s easy to over-read the headline and panic.

The law targets forfeiture and clawback that is triggered by competition, meaning the person going off to work elsewhere in their field. That’s the specific thing the statute names: forfeiting compensation “as a consequence of engaging in a lawful profession, trade, or business.”

Standard time-based vesting is a different animal, and it appears to survive. When an employee leaves and forfeits their unvested equity simply because they haven’t vested yet, that forfeiture isn’t triggered by where they go next. It’s triggered by the fact that they left before earning the shares. That’s ordinary vesting, and it doesn’t turn on competition, so it isn’t caught by this definition.

The clauses at risk are the ones that say something like: “If you leave and go work for a competitor, you forfeit your vested equity” or “we can claw back your gains if you compete.” Those are the ones that just became non-competes in Washington.

What founders should actually do

If you have employees or contractors in Washington, or you’re a Washington company, this is a documents review, not a fire drill. The law doesn’t take effect until June 30, 2027, so you have runway. Concretely:

• Read your equity docs for competition triggers. Look through your option plan, grant agreements, and any repurchase or clawback provisions for language that ties forfeiture or repayment to the person competing or joining a competitor. Those are the exposed clauses.
• Separate competition-based forfeiture from time-based vesting. Standard vesting (you forfeit what you haven’t earned when you leave) is fine. It’s the “and you can’t compete or we take it back” layer that’s the problem.
• Don’t confuse this with cleaning up your whole cap table. The fix here is narrow: neutralize or remove competition-triggered forfeiture for Washington folks. Your normal vesting mechanics stay.

This is a good moment to remember that healthy equity design rarely needs punitive clawbacks in the first place. If your model already ties ownership to real contribution, and adjusts fairly when someone leaves, you’re not leaning on a “forfeit it if you compete” hammer to protect the cap table. We’ve written before about why dead equity is the real cap-table risk, and it’s not solved by clawback threats.

This is part of a wider trend

Washington isn’t alone in tightening non-competes in 2026. Tennessee, for example, enacted a law effective July 1, 2026 that bars non-competes for employees earning under $70,000 a year. States are moving in the same direction from different angles, and the through-line is that betting your retention strategy on restrictive covenants is getting riskier every year.

The practical takeaway is narrow: audit your Washington equity docs for competition-triggered forfeiture before June 30, 2027, and lean on ordinary vesting rather than a clause a growing number of states are declaring void.

Frequently asked questions

Does Washington’s law ban all equity forfeiture?

No. It targets forfeiture and clawback that is triggered by competition, meaning a departing person going to work elsewhere in their field. Standard time-based vesting, where someone forfeits unvested equity simply because they left before vesting, is not triggered by competition and appears to survive.

When does the law take effect?

Washington’s ESHB 1155 was signed March 23, 2026 and takes effect June 30, 2027. That gives employers time to review and update their equity documents before it applies.

Does it only apply to high earners?

No. The prior Washington law had a salary threshold, but the new law repeals it. The non-compete ban, including its reach into competition-triggered forfeiture, applies regardless of income.

What should I change in my vesting documents?

Look for clauses that force forfeiture or repayment of equity because someone competes or joins a competitor, and plan to neutralize those for Washington workers. You can keep standard time-based vesting, where unvested equity is forfeited on departure regardless of where the person goes next.