District of Columbia is on the Verge of Implementing One of the Broadest Non-Competition Bans in the Country

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Amidst the ongoing COVID-19 pandemic and other events in the nation’s capital, District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 on January 11, 2021. The bill previously passed the Council of the District of Columbia by a 12-0 vote on December 15, 2020. Congress now has 30 days to review the bill, which will become law unless Congress passes a joint resolution of disapproval, which the president must sign. Given the other events going on in Congress, it seems unlikely Congress and the incoming president will disapprove of this law before the 30-day review period ends.

If the bill becomes law as expected, it would prohibit the use and enforcement of non-compete agreements for all employees who perform work in the District, except certain highly paid physicians whose compensation exceeds $250,000 annually.  (Volunteers, lay members of religious organizations, and casual home-based babysitters are also excluded.) Specifically, the bill would prohibit all DC employers from requiring or requesting employees to sign any agreement containing a non-compete provision. A non-compete that was entered into on or after the applicability date of the bill would be void as a matter of law and unenforceable. Employers would be allowed to obtain non-compete agreements from highly paid physicians provided the employer gives the proposed agreement to the physician at least 14 days prior to execution, and provides specific notice language mandated by the bill.

The bill defines “non-compete provision” exceedingly broadly, so that it encompasses not only post-employment restrictions on competitive activity, but also any provision that “prohibits the employee from being simultaneously employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.”  By virtue of that broad definition, the bill apparently prohibits an employer from having an anti-moonlighting or similar workplace policies disallowing employees from outside employment, either having a second job or operating their own business. Employers will need to square this restriction with an employee’s duty of loyalty, particularly concerning provisions in employment agreements that make the duty contractual. Often, employment agreements contain duty of loyalty provisions that preclude competitive or conflicting employment, and these provisions seemingly would violate the bill’s broad conception of competitive activity.

Note, however, that the bill does permit employers to institute or include in employee agreements confidentiality provisions prohibiting employees from disclosing the employer’s “confidential, proprietary, or sensitive information,” including client lists, customer lists, and trade secrets. Of further note, the bill is silent on non-solicit restrictions, and thus, apparently does not preclude continued implementation of these covenants.

The bill also contains an anti-retaliation provision prohibiting employers from retaliating or threatening to retaliate against an employee for refusing to agree to a non-compete provision; the employee’s alleged failure to comply with an unlawful non-compete provision or workplace policy; asking, informing, or complaining about the existence, applicability, or validity of a non-compete provision or workplace policy that the employee reasonably believes is prohibited under the bill to any employer, coworker, the employee’s lawyer or agent, or governmental entity; or requesting that the employer provide information to the employee regarding this law.

To that last point, the bill contains a notice obligation. It requires employers to provide the following language to its employees within 90 days after the applicability date of the bill, to new employees within 7 calendar days of hire, and to employees who submit a written request for such language within 14 calendar days after the employer’s receipt of such request:  “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 of 2020.”

The bill gives record inspection rights to the mayor and DC Office of Attorney General. As for penalties, the bill allows for administrative penalties of between $350 and $1,000 for both violations of these provisions and the retaliation provisions, following notice to the employer and an opportunity for an administrative hearing, with higher penalties for subsequent violations and for any attempt by an employer to enforce a non-compete provision that is unenforceable or void. Importantly, the bill also gives employees a private right of action. Employees may file an administrative complaint or a civil action in court.

Provided this bill becomes law, as a preliminary matter employers should revise future employment agreements to exclude post-employment non-compete provisions and provisions that prohibit employees from holding second jobs and/or operating their own businesses.  In addition, employers should 1) revise workplace policies to remove anti-moonlighting / outside employment restrictions, 2) review and revise confidentiality obligations in employment agreements and employment policies to be sure they adequately protect the company’s important confidential / proprietary information, 3) confirm that the company has sufficiently robust policies prohibiting conflicts of interest but cognizant of the restriction on simultaneous employment, and 4) review and revise (or include, as appropriate) non-solicitation provisions in employment agreements as they relate to the company’s customers and clients, again to be sure those provisions adequately protect the company.

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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