D.C. Seeks to Join Movement Against Non-Compete Agreements

Saul Ewing Arnstein & Lehr LLP

Saul Ewing Arnstein & Lehr LLP

The Washington, D.C. City Council is considering a proposed bill that would ban non-compete agreements for workers making nearly six-figures, titled the Ban on Noncompete Agreements Act of 2019.

Non-compete agreements, as defined by the bill, are written agreements between an employer and employee that restrict or bar the employee from employment at another employer in a particular geographic area or for a defined period of time. Employers typically have their employees sign non-compete agreements to prevent them from going to a direct competitor immediately after their employment is terminated.

The proposed law (B23-0494) would prohibit non-compete agreements for employees earning equal to or less than three times the state minimum wage. With the current D.C. minimum wage at $14.00/hour, the law would apply to all employees earning just under $88,000 annually; a figure that would rise to over $93,000 once the minimum wage increases to $15.00/hour in 2020. The bill would also prohibit agreements restricting an employee from working for another company during their employment (moonlighting) if their pay is equal to or under the threshold of three times the minimum wage.

While there has been a recent tide of states to enact similar non-compete bans, the D.C. proposal presents a significantly higher income threshold that would cover a larger portion of the workforce compared to the other states. We blogged about states with bans for low wage workers, like Maryland’s law that went into effect October 1, 2019, which prohibits non-compete agreements for workers earning equal to or less than $31,200 annually. This past summer, New Hampshire, Maine, and Rhode Island passed similar laws, prohibiting non-compete for workers earning less than $14.50/hour, less than 400% the federal poverty level, and under 250% the federal poverty level, respectively.  Last year, Massachusetts similarly enacted legislation significantly curtailing the use of non-compete agreements. Washington state’s ban of non-competes for employees earning less than $100,000 per year is one of the few other states to have a far-reaching ban similar to the DC proposal.

What also sets this proposed law apart from other states is the penalties it imposes for violations. Commentators are quick to point out that in many of the states to pass similar bans, the laws are toothless and provide no penalty to employers who violate the law since the laws simply make those agreements null and void. This law, on the other hand, would impose penalties of $500-$1,000 per violation, in addition to penalties of not less than $1,500 if an employer tries to enforce an illegal non-compete against an employee.

The law would also protect retaliation by imposing penalties of $1,000-$2,000 per violation. In addition to all of the above penalties, the law would also then allow the Mayor's discretion to impose penalties of up to $500 per violation of the law.

The bill, which was introduced by 8 of the council’s 13 members, still needs to be passed by the council and signed by the mayor, but if enacted, it would represent one of the strongest state laws to curtail the use of non-compete agreements. A hearing was held on the law in early December and the council is currently accepting public comments.

Employers operating in D.C. should pay particular attention to this bill given the monetary penalties that could quickly add up for violations.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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