The District of Columbia Revises Ban on Non-Competes
On July 27, 2022, Mayor Muriel Bowser signed into law the Non-Compete Clarification Amendment Act of 2022, scaling back certain aspects of D.C.’s original Ban on Non-Compete Agreements Amendment Act of 2020. As we previously reported, the original ban included some of the most substantial non-compete restrictions in the country, including prohibiting the use of non-compete agreements for nearly all employees working in D.C. and banning anti-moonlighting policies. Here are some key takeaways from the Amendment:
Scope: The Amendment defines a non-compete provision as “a provision in a written agreement or a workplace policy” (both written and those implemented as a matter of practice), “that prohibits an employee from performing work for another or from operating the employee’s own business.”
Which employees are excluded from the non-compete ban? The Amendment permits non-compete provisions for “medical specialists,” defined as licensed physicians who have completed a medical residency, are primarily engaged in the delivery of medical services, and make at least $250,000 a year; as well as “highly compensated employees,” defined as individuals expected to earn $150,000 or more annually. The Amendment specifies that compensation includes salary, hourly wages, bonuses, commissions, overtime pay, vested stock and other income “provided on a regular or irregular basis.” Additionally, the Amendment adds helpful information regarding which non-highly compensated employees are covered, including employees who either i) spend more than 50% of their time working in D.C., or ii) spend a substantial amount of their work time for the employer in D.C. and do not spend more than 50% of their work time in another jurisdiction.
What is required from employers for permissible non-compete agreements? The Amendment imposes a notice requirement for non-compete agreements to be enforceable. Specifically, the agreement must be provided to the employee in writing at least 14 days prior to commencing employment or, if the employee is already employed, at least 14 days prior to the date the employee must execute the agreement. Additionally, the agreement must:
Specify the services, roles, industry, or competing entities the employee is restricted from performing work in or on behalf of
Specify the geographical limitations of the work restriction
Restrict the non-compete agreement to a one year term from the date of separation or a two-year term for medical specialist
The employer must also provide the following specific notice when a non-compete is proposed to an employee:
“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).”
What provisions are excluded from the non-compete ban for covered employees?
Protection for employers’ confidential and proprietary information: The amendment clarifies that employers may prevent employees from disclosing, using, selling, or accessing an employer’s confidential or proprietary information either during or after employment.
Certain anti-moonlighting restrictions permitted: The amendment permits anti-moonlighting provisions in situations where outside employment could result in a conflict of interest or result in the disclosure or use of the employer’s confidential or proprietary information.
Exception for long-term incentive plans: The amendment permits non-compete provisions to be included in long term incentive plans, including bonuses, equity compensation, and stock options.
If an employer believes that any employee falls within the aforementioned exceptions, they must provide such employees with a written copy of the relevant provisions either by October 31, 2022, or within 30 days of acceptance of employment for newly hired employees, and any time the policy changes.
The amended ban went into effect on October 1, 2022, though it will not be applied retroactively. Thus, beginning October 1st, employers in D.C. should ensure that their non-compete agreements and employment policies comply with the Amendment’s requirements for applicable employees. Further, the Amendment reiterates that an employer may not retaliate against an employee for refusing to agree to a non-compete, refusing to abide with an unlawful non-compete provision, or for inquiring or complaining about the validity of a provision. Accordingly, employers should ensure that relevant managers and human resources staff are properly trained regarding the anti-retaliation provisions of the Amendment.