Employment Agreements: DC’s Recent Ban on Non-Competes is One of the Broadest in the Country
On January 11, 2021, the mayor of the District of Columbia, Muriel Bowser, signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), which is set to be one of the broadest and most expansive bans on non-competes in the country. The Act bans provisions in employment agreements that forbid any employee from working for a competitor not only after their employment, but also during their employment. While the Act does not apply retroactively, any non-compete entered into after the Act’s effective date is void and unenforceable.
The Act was submitted for the requisite 30-day congressional review period and is expected to become law in the coming months.
The Scope of the Act
The Act prohibits employers from requiring or requesting that employees, who perform work in the District of Columbia, sign agreements that include a non-compete provision. The Act broadly defines a non-compete as a “provision of a written agreement between an employer and an employee that prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.” (Emphasis added.) In essence, an employer cannot prohibit an employee from simultaneously working for a competitor, nor can an employer prohibit an employee from working for a competitor after the employee’s employment has ended.
Moreover, employers cannot retaliate or threaten to retaliate against an employee for: (i) refusing to agree to a non-compete; (ii) failing to comply with a non-compete or policy made unlawful by the Act; (iii) asking, informing, or complaining about the existence or validity of a non-compete provision or policy that the employee reasonably believes is prohibited by the Act; or (iv) requesting information required to be provided by the employer to the employee.
The Act carves out an exception for lawful provisions that restrict an employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or a trade secret. The Act also permits lawful provisions that are contained within, or executed contemporaneously with, an agreement between a seller of a business and a buyer, wherein the seller agrees not to compete with the buyer’s business. Surprisingly, the Act does not reference non-solicitation provisions, which suggests it may be permissible for employers to continue using such provisions in their employment agreements.
Who is Covered by the Act?
Employers are defined as “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District, or any person or group of persons acting directly or indirectly in the interest of an employer operating in the District in relation to an employee, including a prospective employer[.]” The Act expressly excludes the District of Columbia and United States governments as employers. Notably, the Act does not include a minimum employer size.
Unlike restrictions on non-competes in other jurisdictions, the Act applies to nearly every employee working in the District of Columbia, regardless of income. The Act exempts from coverage certain volunteers, casual babysitters, lay members elected or appointed to office within a religious organization, and medical specialists earning at least $250,000 per year.
The Act also requires covered employers provide the following notice to employees:
“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.”
This notice must be provided within 90 days of the Act’s effective date, 7 days after an individual becomes an employee of the employer, and 14 days after an employer receives a written request from an employee.
The Act provides a private cause of action for employees and also permits the Mayor to levy administrative penalties on employers who violate the Act. For each violation of the Act, the Mayor may assess a fine between $350 and $1,000. Affected employees can sue employers to recover between $500 to more than $3,000, depending on the type of violation, and whether it is a subsequent violation.
The Act is consistent with the recent trend in several other states restricting the use of non-competes. Companies with employees in the District of Columbia should perform a comprehensive review of their existing employment agreements and consult experienced counsel to ensure compliance with the Act.