(If you employ at least one employee who is working 50% of the time in D.C., read on.)
Note: This article updates our previous article on the D.C. Ban on Non-Compete Agreements Amendment Act of 2020). The implementation of the D.C. Ban on Non-Compete Agreements Amendment Act of 2020 was postponed several times since its enactment. In the summer of 2022, D.C. Mayor Muriel Bowser signed the Non-Compete Clarification Amendment Act of 2022 (“Amended Act”), significantly changing the 2020 act. This update provides a summary of the current law which is codified at D.C. Code Section 32-581.01, et seq.
Effective Date: October 1, 2022. Non-compete agreements entered before this date remain enforceable.
Summary of the Amended Act: The Amended Act prohibits a covered employer from requiring or requesting that a covered employee who is not highly compensated “sign an agreement or comply with a workplace policy that contains a non-compete provision.” A non-compete provision that violates the Amended Act (on or after October 1, 2022), will be void and unenforceable.
A covered employer includes “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in D.C., or any person acting directly or indirectly in the interest of an employer operating in D.C. in relation to an employee, including a prospective employer.” The definition excludes the D.C. and U.S. governments. The Amended Act does not explain what it means for a business to “operate” in D.C.
A covered employee is a current or prospective employee who spends (or is expected to spend) more than 50% of their working time working in D.C. for the employer. The Amended Act excludes from the definition of employee casual babysitters and partners in a partnership.
A highly compensated employee is one who earns, in total compensation, at least $150,000 per year, unless the employee is a medical specialist (i.e., a licensed physician who has completed their residency), in which case the employee must earn at least $250,000 to be considered highly compensated. These threshold amounts will be adjusted annually starting January 1, 2024.
The Amended Act defines the term “non-compete provision” as “a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another employer for pay or from operating the employee's own business.”
Not all restrictive covenants are restricted: The term “non-compete provision” does not include a non-compete contained in a buy-sell agreement; confidentiality/non-disclosure agreements or policies protecting confidential or proprietary information; or conflict of interest provisions preventing employees from accepting money or other things of value that may create a conflict of interest, result in disclosure of confidential/proprietary information, or impair the employer’s compliance with applicable law, contractors, or grants. Also excluded are provisions creating a long-term incentive, such as “bonuses, equity compensation, stock options, restricted and unrestricted stock shares or units, performance stock shares or units, phantom stock shares, stock appreciation rights, and other performance driven incentives for individual or corporate achievements typically earned over more than one year.” The Amended Act does not address or prohibit non-solicitation agreements.
Lastly, employers may not retaliate or threaten to retaliate against an employee who refuses to agree to or fails to comply with an unlawful non-compete provision or workplace policy prohibiting simultaneous employment. Employers are further prohibited from retaliating against an employee who raises questions or complaints about a non-compete provision that the employee reasonably believes to be unlawful or against an employee who requests a copy of the employer-mandated written notice.
Content of Non-Compete: To be valid and enforceable, a non-compete provision used with a highly-compensated employee on or after October 1, 2022, must contain the following information: (1) a description of the functional scope of the provision (detailing what the employee is restricted from doing and for whom); (2) the geographic scope of the restriction; and (3) a term that lasts no more than 365 days from the date of the employee’s separation from employment or, in the case of a medical specialist earning at least $250,000 per year, is not longer than 730 days from the date of separation.
Penalties: The Amended Act provides recourse for an employee through a private right of action or submission of a complaint to the mayor’s office. It also provides for administrative penalties and relief payable to employees ranging from $350 to $3,000 per affected employee, depending on the violation. The mayor’s office and Attorney General have the right to inspect records.
Notice: The Amended Act contains three notice provisions.
Covered employers with policies addressing the exceptions to the definition of non-compete provision (e.g., confidentiality/non-disclosure or conflicts of interest) must provide written notice of such policies to its D.C. employees: (1) within 30 days of the employee accepting employment with the employer; (2) within 30 days after October 1, 2022; and (3) any time the policy changes.
Covered employers requiring that a prospective, highly compensated employee sign non-compete provisions must provide those provisions in writing no less than 14 days in advance of the first day of work. If the employer wishes to introduce a non-compete provision to currently employed, highly compensated employees, the employee must receive it at least 14 days before the signing deadline. There are no separate posting requirements.
When proposing a non-compete to a prospective or current highly compensated employee, covered employees must give the following notice at the same time:
The District's Ban on Non-Compete Agreements Amendment Act of 2020 limits the use of non-compete agreements. It allows employers to request non-compete agreements from highly compensated employees, as that term is defined in the Ban on Non-Compete Agreements Amendment Act of 2020, under certain conditions. [Name of employer] has determined that you are a highly compensated employee. For more information about the Ban on Non-Compete Agreements Amendment Act of 2020, contact the District of Columbia Department of Employment Services (DOES).
What Should Employers Do Now?
If you conduct business in D.C. and ordinarily use non-compete agreements with employees who are covered by this new law, evaluate alternatives that are not expressly prohibited under the Amended Act for workers who do not qualify as “highly compensated,” such as confidentiality agreements or non-solicitation agreements, to protect your company’s proprietary information and customer base, to the extent permitted by law.
In addition, review agreements entered into since October 1, 2022 to see whether they are valid in terms of scope and duration, and review and modify existing company policies such as outside employment and conflicts of interest policies according to the Amended Act’s restrictions. Finally, review all onboarding and notice procedures to ensure compliance with notice and posting requirements.
Please note that this article only discusses statutory limitations. Even if a non-compete agreement is permitted under the Amended Act, it still could ultimately be ruled invalid or otherwise limited by the common law. Employers implementing non-compete agreements should have them reviewed by an attorney.
This information has been prepared by Tydings for informational purposes only and does not constitute legal advice.