On March 15, 2021, the District of Columbia’s new “Ban on Non-Compete Agreements Amendment Act of 2020” is projected to pass Congressional review and become law. The sweeping statute, which purports to ban non-compete agreements, except in connection with the sale of a business, was signed by the Mayor of the District of Columbia on January 11, 2021, and will bring D.C. alongside California as one of the toughest jurisdictions in the world in limiting the use of non-compete covenants.
While this new law has caught the attention of all employers, federal contractors, in particular, have had a lot of questions about this legislation since we first blogged about it in January. Unfortunately, its current wording – which could still change – creates some uncertainty about the potential breadth of its application in the future. Here are the top three questions we’re getting from federal contractors and employers with operations in D.C.:
(1) Does the Ban, in effect, prohibit all federal contractors from having non-competes?
No. The Ban applies only between (1) an “employer” that is “operating in the District,” including an employer with prospective operations in the District, and (2) an “employee” “who performs work in the District on behalf of an employer” (with certain exemptions) or “prospective employee” who is reasonably anticipated to perform work in the District on the employer’s behalf.
In other words, for the Ban to apply, both the definition of “employer” and “employee” must be met:
(i) Employer. Employers that are not “operating in the District” are not covered by the Ban. However, the Ban does not expressly define what it means to be “operating in the District.” For example, it does not explicitly address whether this requires an office location in the District, how remote work will be treated, or whether it includes scenarios where an employer without a physical office in the District nonetheless has employees performing work in the District. Many contractors operating from outside the District have employees working on-site at Federal facilities within the District, or at the facilities of other contractors.
(ii) Employee. Employees covered by the Ban are those who “perform work in the District on behalf of an employer” (including prospective employees who are reasonably anticipated to do so). The Ban does not set forth any threshold for amount of work that an employee must “perform” in the District to fall within its purview, so it is still unclear how this definition will apply in practice.
(2) What if an employer covered by the Ban already has non-competes with its employees?
Non-competes entered into before the Ban’s “applicability date” are not explicitly voided. Rather, the Ban voids only non-compete provisions in agreements “entered into on or after the applicability date of this title” between an “employee” and an “employer”.
However, after the Ban goes into effect, employers will be prohibited from “requir[ing] or request[ing] that an employee sign an agreement that includes a non-compete provision,” or, notably, having a workplace policy prohibiting employees from “[b]eing employed by another person,” “[p]erforming work or providing services for pay for another person,” or “[o]perating the employee’s own business” (among other things). Employers will also be required to provide employees with notice of the Ban by way of statutorily prescribed language.
(3) Assuming an employer is covered by the Ban, can it have non-competes with employees working for it outside of the District?
Yes. The Ban is only applicable to an “employee” “who performs work in the District on behalf of an employer” and any “prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the District” (absent certain exceptions). In other words, employees who do not perform work in the District and are not reasonably anticipated to do so are not covered by the Ban. As explained in our response to Question (1), what is less clear is whether the Ban only applies to employees who work in the District full time or whether it may be stretched to apply to employees who split their time between office locations both within the District and outside of the District.
In light of these unanswered questions, it’s worth noting that the Ban acknowledges the legality of non-competition provisions in connection with the sale of a business, as well as the existence of “otherwise lawful” provisions restricting the disclosure of an employer’s trade secrets or other categories of confidential information. Employers will need to carefully consider whether these exceptions apply.
It is possible that more concrete guidance or regulations may be forthcoming that would help employers, including federal contractors, navigate this new legislation. With the Ban’s projected law date on the horizon, contractors should revisit their non-compete agreements and internal policies and continue to consult counsel to determine whether and how to best modify their practices to comply with the Ban’s requirements and minimize the risk of getting caught up in the first wave of litigation as the new law’s ambiguities are tested.