In January, DC enacted the Ban on Non-compete Agreements Amendment Act of 2020, D.C. Official Code § 32-130 et seq. At a high level, the law:
- bans almost all non-compete agreements for employees who work in DC;
- bans policies that prohibit an employee from holding a second job, even while simultaneously employed; and
- requires covered employers to give notice to all covered employees of the law.
The law expressly allows confidentiality agreements, but is silent as to non-solicitation agreements. As written, the law leaves unanswered a number of critical questions about its application and impact.
This article provides an overview of the key provisions of the law, highlights some of the questions left unanswered by its text, and notes the steps employers can take now to prepare.
The law will likely take effect in Fall 2021, when DC’s next budget is likely to be approved, as the law does not take effect until its fiscal impact is included in an approved budget.
Who is covered under the law
In short, the law protects most employees who work in DC if their employers operate in DC.
The law defines “employer” as any “individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District,” or “any person or group of persons acting directly or indirectly in the interest of” such entities, “in relation to an employee.” The definition includes prospective employers and excludes the federal or DC governments.
“Employee” is defined as “an individual who performs work in the District on behalf of an employer,” and includes “prospective employees.” The law excludes volunteers, certain workers for religious organizations, babysitters, and “medical specialists,” defined to include certain physicians.
The law contains no threshold for how much work must be performed in DC. However, the definition of employer uses the phrase “operating in the District,” which implies an employer with more than only an occasional presence. The law also does not address whether it requires physical presence in DC or if it encompasses remote work.
What is prohibited
(1) Non-compete agreements entered after the law’s effective date. The law prohibits employers from “requiring or requesting” that employees sign non-compete agreements, and it voids non-compete provisions in agreements entered after the effective date. It is not retroactive to agreements entered before its effective date.
The law defines a “non-compete provision” as “a provision of a written agreement between an employer and an employee that prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.” The term expressly excludes (1) confidentiality agreements, and (2) non-compete provisions in connection with the sale of a business.
The law makes no mention of non-solicitation provisions. Notably, however, the District Council’s Committee on Labor and Workforce Development’s Committee Report in support of the law expressly carved out non-solicitation provisions as one of the “more precise tools” that the law presumably left untouched.
The law also does not address whether an agreement that discourages, but does not prohibit, competitive activity would violate the law.
(2) Policies prohibiting moonlighting. The law further makes unlawful workplace policies that “prohibit” employees from being employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business. This prohibition extends to policies that prohibit employees from simultaneously working for another employer, thus impacting policies that address moonlighting, conflicts of interest, and other similar policies. This provision bans policies entered before the effective date that continue in effect.
The law makes no carve out for second jobs that would harm an employer’s interests. However, the law does not claim to overturn existing laws regarding an employee’s duty of loyalty and fiduciary duties. Thus, it remains to be seen how a court would interpret the law if an employee went to work for a direct competitor in a capacity that directly harms her employer’s interests.
(3) Retaliating against or threatening employees. The law prohibits retaliation against employees who: refuse to sign non-competes; fail to comply with unlawful non-compete agreements or workplace policies; or question or discuss non-competes in the workplace.
The law requires employers to give a one-sentence notice provision to all employees within 90 days after the law goes into effect, to new employees within 7 days of hire, and within 14 days of an employee’s request. The notice provision states: “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.”
The law provides for a private right of action, and also gives DC’s Mayor or Attorney General authority to enforce the law. The law provides for administrative penalties of $350 to $1,000 per violation, and up to $3,000 for subsequent violations. In a civil action, an employee can recover back wages, treble liquidated damages, attorneys’ fees, and can seek reinstatement.
The law permits the Mayor and the Attorney General to promulgate regulations to implement the Act, so those regulations may eventually fill in some of the open questions about the law.
Steps employers can take now to prepare
In preparation for the law going into effect, employers should:
- Analyze their workforce to determine who falls within the law’s coverage.
- Review existing policies for any changes that need to be made, including policies on moonlighting, conflicts of interest, outside remuneration, and the like.
- Develop a plan for distributing the notice to covered employees once the law goes into effect, including updating onboarding paperwork.