In January 2021, Washington, D.C. Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020, which will, once effective, constitute one of the broadest statutory bans of non-compete agreements in the United States. Indeed, not only will the new law place a near-total ban on non-compete agreements, but it will also impose an affirmative duty on employers to inform employees of the new law under threat of administrative and monetary fines.
Under the Act, “[n]o 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,” which is broadly defined as any provision that “prohibits the employee from being simultaneously or subsequently employed by another person, or operating the employee’s own business.” (Emphasis added). By prohibiting agreements that restrict an employee from seeking and maintaining simultaneous employment, the Act effectively prohibits “anti-moonlighting” policies in addition to traditional non-compete agreements. These prohibitions, however, only apply to employers prospectively, and have no bearing on existing non-compete agreements.
Though the exceptions to the ban are few, they are notable. For example, the Act defines “employees” to include anyone who performs work in D.C. on behalf of an employer and any prospective employee who an employer reasonably anticipates will perform work on its behalf in D.C. The Act does not include, however, medical specialists, volunteers, babysitters, or certain religious organization workers, nor does it apply to the D.C. or federal governments.
Moreover, while the Act prohibits non-compete agreements covering simultaneous or subsequent employment, the Act does not limit an employer’s ability to protect its own confidential information, nor does it apply to agreements “between the seller of a business and one or more buyers of that business.” Specifically, the definition of “non-compete agreement” excludes any “otherwise lawful provision that restricts the employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or trade secret.” Further, in an instance where a business is sold, a buyer is not restricted from prohibiting the seller from competing against it.
Although still unsettled, the new Act does not, on its face, appear to affect employers’ efforts to reasonably restrict former employees from soliciting clients or customers.
The Act does not yet have a scheduled effective date, as the legislation delayed implementation of the law until its costs are included in an approved budget and financial plan, which usually occurs in the fall. Once the law becomes effective, employers will be subject to three notice mandates: (1) within 90 days of the effective date, employers must provide existing employees in D.C. with written notice that “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 [Act]”; (2) within 7 days of hire, employers must provide written notice of the Act to any new employees; and (3) employers must provide a copy of the written notice to any employee who requests it within 14 days of the request.
Employers that violate the Act are subject to both administrative and civil monetary penalties ranging from $350 to $3,000. The Act also creates a private right of action and permits the D.C. Mayor and Attorney General to assess penalties for implementing or seeking to enforce non-compete agreements, for failing to properly notify employees, or for retaliating against employees under the Act.
Though the Act is not anticipated to go into effect until later in the year, employers should consider reviewing all existing policies applicable to employees who work in D.C., and establishing a compliant notice and record keeping system to ensure it can prove sufficient notice was provided.