D.C. Takes the Ax to Employer Noncompetes

Foley & Lardner LLP

Foley & Lardner LLP

Last month, the mayor of the District of Columbia signed a near-total ban on noncompete provisions used by D.C. employers to protect their business interests. We have previously written about a possible federal noncompete ban and indications that states are moving in the same direction. The new D.C. law will raise a number of questions that may not be resolved until courts sort through many difficult enforcement issues arising out of the language. The bill has been sent to Congress for required approval (because D.C. is not a state) and is expected to take effect in mid-March.

The ban will apply to employers “operating” in the District of Columbia (other than the D.C. or federal governments), who have at least one employee. That’s right, one employee is enough. Covered employees are those “who perform work in the district on behalf of an employer” and the ban will also apply to a prospective employee whom an employer “reasonably anticipates” will perform work in D.C. There are limited exceptions, including licensed physicians earning at least $250,000 per year and lay members of religious organizations engaged in religious functions.

The scope of the noncompete ban will be very broad, prohibiting restrictions imposed in noncompete agreements as well as workplace policies that apply both to current employment as well as post-employment conduct. For example, the ban will prohibit a more typical noncompete that kicks in once employment ends.  But it will also prohibit employers from enforcing policies that prohibit current employees from moonlighting with another employer or from operating their own business while employed. That is an extraordinary reach that could interfere with what most employers believe is a basic employee duty – to give their full time and attention to the interests of the employer while on the job.  At least the legislation will have a carve-out permitting prohibitions on the disclosure of confidential, proprietary or sensitive information or trade secrets, and noncompete provisions applicable to the seller of a business. There is no provision excluding nonsolicitation protections from the ban, but we expect that those will also be permitted.

While the law will “only” ban noncompete agreements entered into on and after the law’s effective date, it does not provide the same clarity about workplace policies that ban working for another person or operating an employee’s own business.

The new D.C. law will ban retaliation against employees who refuse to agree to noncompete provisions and who complain about noncompete provisions or restrictive workplace policies. It also prescribes administrative penalties for employer violations and mandates written notice to employees.

Several questions about the language immediately come to mind. For example, an employee is someone who “performs work in the district on behalf of an employer.” Similarly, an employer is someone “operating in the district.” Given the close proximity of Maryland and Virginia to the District of Columbia, there are many employers based in those states whose employees “perform work” in D.C. Think, for example, of a salesperson based in Maryland who calls on clients in the district.  Will that salesperson automatically be covered by the new law or will that depend on how often the employee visits D.C., how long the visits last or other factors? There also will be questions about what conduct is covered by the ban. For example, it bans agreements or policies that “prohibit” an employee from simultaneously or subsequently working for another. What about employer provisions that limit, but do not prohibit, that work?

We will keep an eye on this development and provide further analysis as the guidance becomes available.

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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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