Washington DC employers have long been awaiting the implementation of the Ban on Non-Compete Agreements Amendments Act of 2020 (the “Non-Compete Act”), which was initially slated to go into effect on March 16, 2021. The DC City Council delayed its implementation a number of times in response to employer push-back on the Non-Compete Act’s near-total non-compete ban. DC employers will welcome news of the DC Non-Compete Clarification Amendment Act of 2022 (the “Clarification Act”), which “clarifies” and loosens the restrictions of the Non-Compete Act. The new non-compete law went into effect on October 1, 2022.
Who is Covered?
The Clarification Act applies to employers operating in in the District, and (1) employees who spend more than 50% of their work time for their employer working in the District; or (2) employees (i) whose employment is based in the District, (ii) who regularly spend a substantial amount of work time for the employer in the District, and (iii) who spend 50% or less of their work time for that employer in another jurisdiction.
Broad Prohibition on Non-Competes
Generally, the Clarification Act prohibits employers from requiring their employees to sign an agreement with a non-compete provision, or to abide by a non-compete provision within a workplace policy. More specifically, the Clarification Act defines a “non-compete provision,” as “a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay, or from operating the employee’s own business.”
Fortunately, the Clarification Act provides for a number of exceptions, including: (1) non-compete provisions executed in conjunction with the sale of a business; (2) confidentiality/non-disclosure provisions; (3) anti-“moonlighting” provisions prohibiting an employee from working, during the course of employment, with another employer if the current employer reasonably believes that such employment will (i) result in disclosure of confidential or proprietary information, (ii) conflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest, (iii) constitute a conflict of commitment if the employee is employed by a higher education institution, or (iv) impair the employer’s ability to comply with DC or federal laws or regulations, a contract, or a grant agreement; and (4) non-compete provisions that provide a long-term incentive, such as a bonus, equity compensation, stock options, and/or certain other qualifying employee benefits that are typically earned over more than one year.
Permitted Non-Competes for Highly Compensated Employees
Of even more importance for employers, the Clarification Act excludes “highly compensated employees” (generally those who make over $150,000 per year, or over $250,000 for qualifying medical specialists), from its non-compete prohibition. Non-competes with highly compensated employees must, however: (a) specify the scope of the restriction, such as the services, roles, industry or competing entities the employee is restricted from performing work in or on behalf of; (b) specify the geographic limitation of the restriction; (c) be limited to one year from the date employee’s employment terminates (or two years for qualifying medical specialists); and (d) be provided to the employee, in writing, at least fourteen days before the employee commences employment, or at least fourteen days before the employee is required to execute the agreement. Further, when presenting the non-compete to the employee, the employer must provide the following disclosure:
“The District of Columbia 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” 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).”
Further, employers with policies restricting an employee’s use or disclosure of confidential and proprietary information or prohibiting active employees from working for other parties, must provide a written copy of the policy to their employees: (a) within thirty days of the employee accepting employment, (b) by October 31, 2022, and/or (c) at any time there is an update or change in the policy.
Lastly, the Clarification Act contains anti-retaliation provisions which prohibit employers from retaliating or threatening to retaliate against an employee who engages in a number of protected activities relating to non-competes.
Given these changes to the non-compete landscape in DC, employers should consult experienced employment counsel to maintain compliance.