DC Proposes Amendments to Recently Enacted Non-Compete Ban
Just as Washington, D.C. employers begin navigating the District’s recently enacted non-compete ban, changes to the law are already in the works. As we previously reported, earlier this year D.C. enacted the Ban on Non-Compete Agreements Amendment Act of 2020 (D.C. Act 23-563) (the “Act”), which prohibits employers from requiring or requesting that an employee sign any agreement containing a non-compete provision. For a more detailed summary and analysis of the Act, please refer to our December 22, 2020 article.
In response to concerns raised by the employer community, Councilmember Elissa Silverman has proposed the Non-Compete Conflict of Interest Clarification Amendment Act of 2021 (the “Bill”), which would clarify the Act’s effect on conflict of interest and confidentiality provisions, and specify at least one way employers can satisfy the Act’s notice requirement. The key provisions of the Bill, summarized below, are helpful in responding to employer concerns, but only narrowly address the issues.
Conflict of Interest Provision
One of the open questions is whether the Act’s ban prohibits conflict of interest provisions. The Bill clarifies that the Act does not extend to “bona fide conflict of interest provisions,” which are defined as a “provision or workplace policy that bars an employee from accepting money or a thing of value from a person during the employee’s employment with the employer because the employer reasonably believes [it will] cause the employer to (A) conduct business in an unethical manner or (B) violate applicable [laws].” In other words, the Bill allows an employer to prohibit its employees from working for another person or organization that the employer reasonably believes would create a conflict of interest in operating the employer’s own business, but only provided the conflict would cause the employer to operate unethically or violate the law.
As enacted, the ban on non-compete agreements does not extend to confidentiality provisions. The Act defines confidentiality provisions as those that restrict an employee “from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or a trade [secret].” The Bill would broaden this definition to include confidentiality provisions that prohibit employees from both disclosure and use of the protected information.
Finally, the Act requires employers to provide employees with notice of the non-compete ban within ninety calendar days of the applicability of the Act, seven calendar days after the date of hire, or fourteen calendar days after the employee submits a written request for the notice. The Bill would help employers satisfy part of this notice requirement by adding the Act’s required language to the model D.C. Notice of Hire Form, which employers already must give to new employees, as well as to employees promoted or given pay increases, under the Wage Theft Prevention Amendment Act of 2014. It is unclear, however, whether the Bill will require the same language to be included on the Notice of Hire Form for temporary staffing firms. Further, employers will still need to provide the required notice language in some other format to current employees after the Act becomes applicable, or upon an employee’s written request. The separate notice requirement for medical specialists remain unchanged.
Additional Changes Expected
The Bill remains pending before the Committee on Labor and Workforce Development (the “Committee”) and, therefore, is subject to change. On July 14, 2021, the Committee held a public hearing to discuss the bill and to hear from industry leaders regarding their concerns. At the hearing, critics expressed concern with the Act’s restrictions on simultaneous employment (e.g., moonlighting), and pressed for an amendment to allow employers to prevent employees from working simultaneously for a direct competitor (e.g., banning a professional baseball player from playing for two teams). Additionally, critics asked that the Bill permit post-employment restrictions on key employees, like senior executives or employees with access to sensitive information. Business leaders argued that absent such restrictions, there is less incentive for employers to train employees who have the ability to leave and join a competitor at any time.
In an effort to balance employee mobility with creating a “friendly and sensible” environment for employers, Councilmember Brooke Pinto suggested permitting the use of targeted non-competes for certain categories of employees. At the hearing, Councilmember Pinto proposed amending the Act to permit the use of post-employment restrictions on employees making more than $80,000 per year and limiting the length of the non-competes to six months or less. Under Councilmember Pinto’s proposal, employers would be required to pay an employee a pro rata fee if the non-compete keeps the employee from a job entirely. Councilmember Pinto’s proposal also would allow the prohibition of moonlighting if simultaneous employment would cause confidential information to be exposed to or used by a competitor.
Likely Delay in Implementation
At the hearing, councilmembers also discussed the timing of the ban. As we previously explained, the District’s non-compete ban is not applicable until the Council appropriates money to fund the law. During her opening statement, Councilmember Silverman confirmed that she has proposed funding for the Act in the Fiscal Year 2022 Budget, which the Council is currently deliberating. However, and more importantly for employers, Councilmember Silverman also recommended the Act’s implementation date be pushed back to April 2022 to give the Council time to react to the business community’s concerns and to possible federal action on non-compete agreements, which has been advocated by President Biden. The Fiscal Year 2022 Budget Support Act, released since the July 14 public hearing, includes a provision that would change the Act’s applicability date to April 1, 2022.
District employers should continue to prepare for the implementation on the ban on non-compete acts, with the understanding that the implementation date will likely be postponed and that the contours of the ban may change.
Alexandria Adkins, a 2021 Summer Associate (not admitted to the practice of law) in the firm’s New York office, contributed to the preparation of this post.