District of Columbia’s Ban on Non-Compete Employment Agreements in Effect
January 5, 2023
The latest version of the District of Columbia’s ban on non-compete provisions in employment agreements went into effect on October 1, 2022.
The District of Columbia’s Ban on Non-compete Agreements Amendment Act of 2020 (D. C. Law 23-209) was signed in January 2021 and set to go into effect on March 16, 2021. The Act of 2020 would have prohibited non-compete clauses in employment agreements with very few exceptions. Following concerns expressed by business and industry as to the broad nature of the Act of 2020, the effective date was postponed until October 1, 2021 (See Ban on Non-Compete Agreements Applicability Temporary Amendment Act of 2022 (D. C. Law 24-132)), and various amendments were proposed.
The Act of 2020 was amended, and its scope limited by the passage of the Non-Compete Clarification Amendment Act of 2022 (D. C. Law 24-526), which was signed into law by Mayor Muriel Bowser on July 27, 2022. The Act went into effect on October 1, 2022. The stated purpose of the 2022 Act was:
To amend the Ban on Non-Compete Agreements Amendment Act of 2020 to clarify which provisions in workplace policies or employment agreements will not violate the law’s restrictions on the use of non-compete provisions and agreements, clarify that employers may bar an employee’s use, in addition to the disclosure, of confidential and proprietary information during or after the employee’s employment for the employer, create a limited exception allowing the use of non-compete provisions with highly- compensated employees, including medical specialists, under specified circumstances, specify what must be contained in a non-compete agreement for it to be valid and enforceable, clarify remedies for violations of the act, clarify how the act relates to a collective bargaining agreement, clarify how the law applies relative to other District laws, and to clarify rulemaking requirements.
Instead of banning all non-compete agreements outright, the Act of 2022 provides rules for the use of non-compete agreements under certain circumstances, including a wage threshold for enforceability of non-compete agreements
The newly enacted ban on non-compete agreements provides that “[b]eginning October 1, 2022, no employer may require or request that a covered employee sign an agreement or comply with a workplace policy that includes a non-compete provision.” Any such provision in an agreement entered into as of that date shall be considered “void as a matter of law and unenforceable.” The act prohibits an employer from retaliating against an employee who refuses to agree to a non-compete agreement, fails to comply with a non-compete provision, requests information about a non-compete agreement, or complains about the existence of a non-compete agreement. The Act provides for enforcement of the law by the Mayor and the District of Columbia Attorney General, and empowers the Mayor to impose administrative fines for violations of the law. The Act allows an aggrieved employee to file a complaint with the Mayor, and also creates a private cause of action allowing an aggrieved employee to file a civil action against an alleged violator.
A “covered employee” is defined under the Act of 2022 as an employee who spends more than 50% of his or her work time for the employer working in the District or whose employment for the employer is based in the District and who spends a substantial amount of his or her work time in the District and not more than 50% of his or her work time in another jurisdiction.
Explicitly excluded from the definition of “covered employee” are “highly compensated” employees who are reasonably expected to earn in a consecutive twelve (12) month period compensation greater than $150, 000.00. For purposes of the exclusion, compensation includes all hourly wages, salary, bonuses, and commissions, but not fringe benefits other than those paid to the employee in cash or its equivalent. The definition of “covered employee” also excludes a “medical specialist” (a licensed, practicing physician) who receives total compensation of $250,000.00 or more. For a non-compete agreement to be valid and enforceable between an employer and a “highly compensated” or “medical specialist” employee, the agreement must specify the scope of the restriction, including the services, industry, and entities the employee is restricted from performing work in or on behalf of, and set forth the geographical limitations of the restriction. Where the employee is not a “medical specialist,” the restriction may not exceed 365 days from the date of separation of employment. Where the employee is a “medical specialist,” the restriction may not exceed 730 days from the date of separation. In addition, the employer must provide the non-compete provision in writing to the “highly compensated” or “medical specialist” employee at least 14 days before the employee commences employment, or if already employed, at least 14 days before the employee must execute the agreement.
Broadcast employees-both on-or off – air creators (such as an anchor, host, disc jockey, reporter, editor, producer, or writer) are covered by the ban on non-compete agreements, regardless of the amount of their compensation.
Provisions Not Banned.
The law states that a “‘non-compete provision’ means a provision in a written agreement or workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business.” The definition does not include:
A) A provision in an agreement for sale of a business wherein the seller agrees not to compete with the buyer’s business.
B) An agreement which prohibits an employee from:
i) Using, disclosing, selling, or accessing the employer’s confidential or proprietary information.
ii) Working for another during the term of his or her employment with the employer where the employer reasonably believes that such employment will:
(I) Result in the disclosure or use of confidential or proprietary information;
(II) Conflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest;
(III) Constitute a conflict of commitment if the employee is employed by a higher education institution; or
(IV) Impair the employer’s ability to comply with District or federal laws, regulations, a contract, or a grant agreement, or
C) An agreement that provides a long-term incentive (such as bonuses, equity compensation, stock options, and other performance driven incentives typically earned over more than one year). The ban does not affect the validity or enforcement of non- compete agreements entered into before October 1, 2022.
Workplace Notice Requirements.
Where an employer maintains a workplace policy restricting an employee’s use or disclosure of the employer’s confidential or proprietary information or prohibits an employee from performing work for pay for others during the employee’s employment by the employer, the employer must provide a written copy of the policy to the employee within 30 days of commencement of employment, within 30 days of October 1, 2022, and any time there is a change in the policy.
The District of Columbia’s ban on non-compete agreements appears to follow the lead of other jurisdictions which have imposed wage threshold restrictions on non-compete agreements. See,
e. g. MD LABOR & EMPL CODE, ANN., section 3-716; 820 ILCS 90/10 (Illinois Compiled
Statutes Annotated); Va. Code Ann., section 40.1-28.7:8; Annotated Rev. Code of Wash., section 49.62.020.