DC Bans Non-Compete Agreements and Prohibitions on Simultaneous Employment

Morgan Lewis
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Morgan LewisSubject to certain very narrow exceptions, the new law will apply to virtually all Washington, DC, employees when it comes into effect later this year.

Washington, DC, Mayor Muriel Bowser recently signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the Act) into law. Under the Act, employers will be prohibited from requiring or requesting that all DC employees—except volunteers, members of religious organizations, casual babysitters, and highly-compensated medical specialists—execute a non-compete agreement. Unlike other jurisdictions that have increasingly restricted employers’ use of non-compete agreements only for workers earning wages below a certain threshold, the Act will apply to virtually all DC employees. Although the Act’s effective date remains unclear—to take effect, the Act must be funded by the DC Council—it will likely take effect after the next budget cycle in the fall of 2021.

EMPLOYEES AND EMPLOYERS COVERED UNDER THE ACT

The Act covers all DC private employers (and prospective employers) and applies broadly to almost all employees who perform work in DC or whom a prospective employer reasonably anticipates will perform work in DC. The Act does expressly carve out certain categories of employees from coverage under the Act, specifically:

  • Volunteers who engage in the activities of an educational, charitable, religious, or nonprofit organization;
  • Lay members elected or appointed to office within the discipline of any religious organization and engaged in religious functions;
  • Casual babysitters; and
  • Medical Specialists—which is defined as an individual who performs work in DC on behalf of an employer engaged primarily in the delivery of medical services and who holds a license to practice medicine, is a physician, has completed a medical residency, and earns at least $250,000 in annual compensation. (To utilize a non-compete agreement for Medical Specialists, an employer must also meet certain procedural requirements in advance of executing the non-compete agreement.)

PROHIBITIONS ON NON-COMPETE AGREEMENTS

The Act prohibits employers from requiring or requesting that an employee sign an agreement that includes a non-compete provision. Significantly, however, the Act excludes from its prohibitions confidentiality agreements that protect an employer’s trade secrets, customer lists, or other proprietary or sensitive information as well as sale or purchase agreements where the seller agrees not to compete with the buyer. The Act does not expressly address other types of restrictive covenants, such as non-solicitation provisions.

While the Act explicitly states that any non-compete agreement entered into on or after the Act’s effective date is unenforceable and void as a matter of law, it does not contain a retroactive enforcement provision. Accordingly, non-compete agreements already in effect on the Act’s effective date could potentially remain enforceable.

RESTRICTIONS ON POLICIES PROHIBITING SIMULTANEOUS EMPLOYMENT

Importantly, the Act will impact all DC employers—even those who do not employ non-compete agreements—as it broadly prohibits restrictions on simultaneous employment. Specifically, the Act bars employers from having workplace policies that prohibit an employee from being employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business. This broad prohibition does not limit the restrictions to competitors of the existing employer. Accordingly, DC employers will no longer be able to enforce policies prohibiting moonlighting or other outside employment.

NOTICE REQUIREMENTS AND PROHIBITION ON RETALIATION

DC employers must provide employees with the following individual written notice:

No employer operating in the District of Columbia may request or require any employee working in the District of Columbia to agree to a non-compete policy or agreement, in accordance with the Ban on Non-Compete Agreements Amendment Act of 2020.

Employers must provide the initial written notice to each employee within 90 days after the Act’s effective date. Thereafter, employers must provide their employees with individual written notice within seven calendar days after hire and 14 calendar days after receiving a written request for notice from an employee. The Act does not contain a separate posting requirement.

The Act also prohibits an employer from retaliating or threatening to retaliate against an employee who refuses to agree or fails to comply with an unlawful non-compete provision or workplace policy prohibiting simultaneous employment. Employers are further prohibited from retaliating against an employee who raises questions or complaints about a non-compete provision that the employee reasonably believes to be unlawful or requests a copy of the employer-mandated written notice.

ENFORCEMENT MECHANISM AND PENALTIES

The Act provides both a private right of action and an administrative complaint procedure to resolve alleged violations. Penalties range from $500 to $3,000 per affected employee, depending on the type of violation. Employers may also be assessed additional administrative penalties ranging from $350 to $1,000 per violation of the non-compete and employee notice provisions and more than $1,000 per violation of the anti-retaliation provision. Finally, an employer that violates the non-compete prohibition, unlawfully bans an employee from engaging in simultaneous employment, or fails to provide the mandatory written notice must pay each employee subjected to the violation a penalty of between $500 and $1,000—which may further incentivize employees to report violations.

EMPLOYER OUTLOOK

Despite the somewhat uncertain effective date, DC employers should prepare for the Act to take effect by taking some or all of the following steps:

  • Reviewing employee rosters and identifying those positions that would normally require an employee to execute non-compete agreements. Those positions should instead execute other types of restrictive covenant agreements not prohibited under the Act, such as confidentiality agreements.[1]
  • Reviewing existing policies related to outside employment by employees and making any modifications as necessary to account for the Acts’ new requirements
  • Reviewing existing onboarding and other notice procedures to ensure that they comply with the Act’s employee notice requirements

 

[1] Employers who employ medical specialists should also review their processes related to execution of employment agreements to ensure that they comply with the newly mandated procedures.

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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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