Washington, D.C. Poised to Ban Most Non-Compete Agreements
Non-compete agreements may all but disappear from the Washington, D.C. employment landscape in 2021. On December 15, 2020, the District of Columbia Council voted 12-0 to approve the Ban on Non-Compete Agreements Amendment Act of 2020 (B23-0494) (the “Bill”), which would prohibit the use and enforcement of non-compete agreements for all employees except certain highly paid physicians. If enacted into law, Washington, D.C. will have adopted a much stricter policy than several other states that have recently restricted the use of non-compete agreements—including its neighbors Maryland and Virginia. The Bill is currently awaiting approval by the Mayor before, absent a veto, it is sent to Congress for the required 30-days of session Congressional review period.
Non-Compete Agreements Prohibited
The Bill prohibits all D.C. employers from requiring or requesting employees to sign any agreement containing a non-compete provision, or implementing a workplace policy that prohibits an employee from (1) being employed by another person, (2) performing work or services for pay for another person; or (3) operating their own business. This ban applies to all employees except volunteers, casual babysitters, certain members of religious organizations, as well as licensed physicians who have completed a medical residency and earn at least $250,000 annually (“medical specialists”).
A non-compete is broadly defined in the Bill 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.” This definition appears to render illegal anti-moonlighting provisions and other workplace policies that prohibit outside employment. Significantly, however, confidentiality agreements that protect an employer’s trade secrets and other proprietary information (e.g., client lists) are excluded from the ban. There is also a carve-out for non-compete agreements entered into simultaneously with the sale of a business, so a buyer of a business may insist that the seller refrain from competing with the buyer. The Bill does not address non-solicitation agreements, so such provisions appear to remain unaffected.
All covered non-compete provisions contained in agreements entered into after the Bill takes effect will be void and unenforceable. Pre-existing non-compete agreements appear to be grandfathered in and will continue to be enforceable.
The non-compete law would also prohibit employers from taking or threatening to take any adverse action against employees who refuse to agree or fail to comply with an unlawful non-compete provision or workplace policy. Employers will also be prohibited from retaliating against an employee who asks questions or complains about a non-compete the employee reasonably believes is barred by the law.
Washington, D.C. employers will be required to provide the following notice:
“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.”
Covered employees must receive this notice within 90 days after the law’s effective date. Thereafter, the notice must be provided to all new employees within 7 calendar days of their start date, and within 14 calendar days of any covered employee’s written request.
Requirements for Medical Specialists
Although employers may still seek a non-compete provision as a condition of employment for physicians making at least $250,000, the prospective employee must receive the proposed non-compete provision at least 14 days before execution of the agreement. Moreover, employers must provide medical specialists with the following notice at the same time as providing the proposed the non-compete provision:
“The Ban on Non-Compete Agreements Amendment Act of 2020 allows employers operating in the District of Columbia to request non-compete terms or agreements (also known as “covenants not to compete”) from medical specialists they plan to employ. The prospective employer must provide the proposed non-compete provision directly to the medical specialist at least 14 days before execution of the agreement containing the provision. Medical specialists are individuals who: (1) perform work on behalf of an employer engaged primarily in the delivery of medical services; (2) hold a license to practice medicine; (3) have completed a medical residency; and (4) have total compensation of at least $250,000 per year.”
Employers may not retaliate or threaten to retaliate against covered physicians who request this notice. Similarly, the Bill prohibits retaliation against a covered physician who informs the employer, a coworker, their lawyer, or a government agency about any conduct prohibited under the law.
Enforcement and Penalties
Employers who violate the non-compete law may face both administrative and civil liability. The Bill permits the Mayor’s office or the D.C. Attorney General to fine employers $350-$1,000 for each violation of the non-compete or notice provisions, and the government may assess fines of more than $1,000 for any instances of retaliation. In addition, individuals who feel that their rights have been violated may file a complaint with the Mayor’s office or a civil court action to seek additional relief of at least $500 for each violation and at least $3,000 if the employer is a repeat offender.
Looking Ahead to 2021
Although recruiters and employees may cheer the Bill, Mayor Muriel Bowser has expressed concern that prohibiting non-compete agreements may introduce “a heightened level of uncertainty into [the D.C.] business climate” that could harm the city’s economic recovery from the COVID-19 pandemic. However, given that the D.C. Council passed the Bill with a veto-proof majority, even if the Mayor vetoes it the non-compete ban will become law unless Congress passes and the President signs a joint resolution of disapproval before the end of the 30-day Congressional review period. Considering the upcoming transition to a new Administration and Congress, a joint resolution of disapproval appears unlikely. Therefore, even though the Bill may be delayed by a veto/formal override and lack of Congressional session days, employers operating in Washington, D.C. should get a head start on reviewing their standard employment agreements and employee policies, and remove all non-compete provisions and other prohibitions on simultaneous outside employment. Moreover, employers who would like to enter into enforceable non-compete agreements with their applicants or employees should consider doing so now before this Bill becomes law.