Washington, D.C., Passes Sweeping Ban on Non-Compete Clauses and Policies

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On January 11, 2021, District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020. Unless the legislation is halted by Congress, the Act will prohibit covered employers from requiring or requesting that an employee performing work in the District sign an agreement that includes a non-compete provision.1

Importantly, the Act does not have a retroactive effect on non-compete agreements in existence before the Act's effective date. Such agreements will remain valid and enforceable.

The Act will require employers to modify existing employment policies (as opposed to existing agreements), and curtail the practice of offering or imposing non-compete agreements to or on employees who perform work in D.C. Here's what employers operating in the District of Columbia should know.

Covered Employers and Employees 

The Act defines "employer" as "an 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 an employer operating in the District in relation to an employee, including a prospective employer." The District of Columbia and federal governments are not covered employers.

The Act also defines "employee" as "an individual 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…." Certain exceptions apply, as discussed below.

Notably, these definitions do not provide a threshold as to the amount of work performed in the District that triggers coverage of the Act, nor do they address whether the Act requires a physical presence in the District or if it covers remote work. Absent further guidance from the Council or the courts, employers should consult with experienced counsel as to coverage issues.

Non-Compete Provisions Defined

As noted above, employers will not be permitted to require or request that employees covered under the Act sign an agreement with a non-compete provision—regardless of whether the non-compete applies to competitive opportunities during or subsequent to the individual's employment.

Specifically, the Act defines a "[n]on-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." (Emphasis added.)

Implications for Workplace Policies

Specifically, the Act forbids covered employers from maintaining any workplace policy that prohibits an employee from:

  • (1) Being employed by another person;
  • (2) Performing work or providing services for pay for another person; or
  • (3) Operating the employee's own business.

For purposes of the Act, a "workplace policy" is any rule or restriction, "whether written or as a matter of practice, implemented … to govern the conduct of the employer's employees."

  • Unlike with existing non-compete agreements, the Act is retroactive as applied to pre-existing workplace policies, which will be invalidated insofar as they fail to comply with the Act.

Prohibition on Retaliation

Covered employers are prohibited from retaliating or threatening to retaliate against employees for:

  • (1) Refusing to agree to a non-compete provision;
  • (2) Allegedly failing to comply with a non-compete provision or workplace policy made unlawful by the Act;
  • (3) Asking, informing, or complaining to an employer (including the employee's employer), a coworker, the employee's lawyer or agent, or a governmental entity about the existence, applicability, or validity of a non-compete provision or a workplace policy that the employee reasonably believes is prohibited by the Act; or
  • (4) Requesting information from an employer that the Act requires be provided.

Written Notice Requirement

Specifically, employers must provide their employees with the following 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."

This written notice must be provided:

  • (1) To existing employees within 90 days after the Act becomes law;
  • (2) To newly hired employees within seven days of their start date; and
  • (3) Within 14 days after receipt of an employee's request for the statement.

Penalties for Non-Compliance

The Mayor of the District of Columbia may assess administrative penalties of $350 to $1,000 for each violation of the Act's non-compete or notice provisions, and may assess fines in excess of $1,000 for any instances of retaliation.

Additionally, employers who violate the Act will be liable for penalties payable to each effected employee—for each violation—in an amount between $500 to $2,500. For subsequent violations, the per-employee penalty shall be no less than $3,000.

Exceptions to D.C.'s Non-Compete Ban

Despite its broad scope, the Act does include some exceptions:

  • The non-compete ban does not apply to:
    • Volunteers in educational, charitable, religious, or nonprofit organizations;
    • Lay members elected or appointed to office within a religious organization and engaged in religious functions;
    • Casual babysitters; or
    • Certain medical specialists (broadly, those earning more than $250,000 annually). The Act contains specific rules for such medical specialists, including a 14-day review period and specific written notice requirement.
  • The Act's definition of non-compete provisions expressly excludes otherwise lawful provisions that:
    • (1) Restrict individuals from disclosing their employer's confidential, proprietary, or sensitive information, client list, customer list, or trade secrets; or
    • (2) Are within, or contemporaneous to, an agreement between a seller and buyer(s) of a business wherein the seller agrees not to compete with the buyer(s)'s business.

Notably, the Act does not expressly reference non-solicitation clauses, which suggests that non-solicitation agreements will remain valid and enforceable.

Next Steps

Covered employers should work with counsel to monitor the status of the Act as it awaits Congressional review. In the interim, employers may wish to provide covered employees with non-compete agreements before the Act becomes effective,2 and should also consider whether their existing policies might require revision.

FOOTNOTE

1  The Act becomes effective following the Mayor's approval, a 30-day period of Congressional review, and publication in the D.C. Register.
2  See fn. 1, supra.

[View source.]

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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