2021 Mid-Year State Non-Compete Legislative Update
Last month, Washington, D.C. Mayor Muriel Bowser signed the Ban On Non-Compete Agreements Amendment Act of 2020 (“the Act”), which becomes effective next week. This law is a statutory ban on non-compete agreements that has the strength of similar bans in California, North Dakota, and Oklahoma.
The Act applies to all D.C. private employers and applies broadly to most employees who perform work in D.C. or whom a prospective employer reasonably anticipates will perform work in D.C. The law does not have a minimum salary threshold. Under the Act, employers are prohibited from requiring or requesting that D.C. employees execute a non-compete agreement, with a few exceptions for unpaid volunteers, babysitters, and certain licensed physicians.
The law is not retroactive, and will go into effect on or about March 19, 2021 (assuming that it passes the 30-day Congressional review period). Therefore, non-compete agreements already in effect on the Act’s effective date could potentially remain enforceable if they are otherwise lawful under common law principles.
The Act Prohibits Nearly All Non-Compete Restrictions
The Act defines a non-compete as a provision that “prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services to pay for another person, or operating the employee’s own business.” Importantly, the Act not only prohibits employers from restricting an employee from working for a competitor after their employment, but also from restricting an employee’s competitive activities while employed by the employer. Consequently, the Act appears to allow an employee to hold another job during their employment, even a job with a direct competitor. As such, D.C. employers will no longer be able to enforce policies prohibiting moonlighting or other outside employment.
However, the Act excludes from its prohibitions confidentiality agreements that protect an employer’s trade secrets, customer lists, or other proprietary or confidential information, in addition to sale or purchase agreements where the seller agrees not to compete with the buyer. The Act does not specifically address any other type of restrictive covenants, such as non-solicitation provisions. Arguably, such non-solicitation provisions do not fall within the Act’s definition of a prohibited “non-compete provision” and may still be permissible. Employers should continue to monitor this issue to see how courts and D.C. administrative agencies interpret the Act.
The Act also prohibits an employer from retaliating or threatening to retaliate against an employee who refuses to agree 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 complains about a non-compete provision that the employee reasonably believes to be unlawful, or who requests a copy of the employer-mandated written notice.
The Act requires all D.C. employers (including employers not using non-compete agreements) to provide written notice of the Act to employees, using the following specific language:
“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.”
Employers must provide this notice on three separate occasions:
(1) ninety calendar days after the Act becomes effective;
(2) seven calendar days after an individual becomes an employee; and,
(3) fourteen calendar days after the employer receives a written request for notice from the employee.
The Act does not contain any separate posting requirement.
The Act provides a private right of action and an administrative complaint procedure to resolve alleged violations of the Act. Penalties may range from $500 to $3,000 per affected employee, depending on the violation. Employers may also be subject to penalties ranging from $350 to $1,000 per violation of the non-compete provision, and more than $1,000 per violation of the anti-retaliation provision. Finally, an employer that violates the non-compete prohibition, unlawfully bans an employee from engaging in simultaneous employment, or fails to provide the mandatory written notice must pay each employee subjected to the violation of the Act a penalty of between $500 and $1,000. This latter provision incentivizes employees to report violations.
In light of the Act, employers should do the following:
Decide whether to require certain employees to execute non-competes before the Act becomes effective;
Determine which of its positions would normally require an employee to execute non-compete agreements. Instead of requiring any applicants or prospective employees in those positions to execute a non-compete, consider other types of restrictive covenant to meet the employer’s goals (e.g., the protection of its trade secrets and other confidential or proprietary information);
Review existing policies, offer letters, restrictive covenant agreements related to outside employment (i.e., moonlighting) and revise them to account for the Act’s requirements;
Ensure that other workplace policies and procedures adequately protect the company from violations of non-disclosure or confidentiality obligations.
Review existing onboarding and other notice procedures to ensure compliance with the Act’s notice requirements;
Consult with counsel to determine a plan for future agreements and policies.