In a move aligned with California’s view of non-competes, the District of Columbia (subject to congressional oversight) will soon impose a complete ban on any employment covenant that restricts employment elsewhere at any time, even restrictions forbidding simultaneous employment somewhere else. On January 11, 2021, Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), which will soon become law unless Congress issues a joint resolution disapproving the Act within 30 days of receipt of the Act. The projected date for the Act to become law is March 19, 2021. Then, in all likelihood, the Act will go into effect in the fall of 2021 once the DC Council tees up a fiscal impact statement and funding for the Act after the next budget cycle.
The Contours of the Act
The Act forbids an employer from requiring or requesting that an employee who works in the District or a prospective employee whom the employer reasonably expects will work in the District sign any agreement with a non-compete provision. A non-compete provision under the Act is 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.” The ban applies to a DC employer, which includes “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.” Specifically excluded are the DC and United States governments.
Not all individuals may avail themselves of the Act’s protections, though. For example, volunteers in educational, charitable, religious, or nonprofit organizations cannot seek protection from the Act. Nor may lay members elected or appointed to office within the discipline of any religious organization and engaged in religious functions. Also not protected are casual babysitters and licensed physicians who work on behalf of an employer engaged primarily in the delivery of medical services earning at least $250,000 per year. The latter category—medical specialists—have the automatic right to consider a non-compete provision for 14 days before agreeing to it.
With no retroactive application, the Act does not invalidate a non-compete agreement entered into prior to the effective date of the Act. What is invalidated are the continuation of workplace policies that constrain employees from holding simultaneous employment, performing work or providing services for another person for pay, or operating their own business. Retaliation of many forms are also forbidden: this includes retaliating or threatening to retaliate against employees for not agreeing to a non-compete; failing to comply with a workplace policy now forbidden by the Act; asking, informing, or complaining to others about the existence, applicability, or validity of a non-compete agreement or workplace policy the employee reasonably believes is prohibited by the Act; or requesting information required by the Act to be disseminated. To be clear, the Act defines retaliation as taking such adverse actions like threats, verbal or written warnings, reduction of work hours, suspension, or termination.
Indeed, the Act imposes a notice requirement on the employer, which must provide the following: “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.” And there are time constraints depending on the classification of employees. For starters, employers must provide this notice to existing employees within 90 days of the Act becoming law. For newly hired employees, the notice must go out within seven (7) days of their start date. Finally, to any employee who requests in writing the notice, employers must comply within 14 days upon receipt of the request.
Liability for Violating the Act
The Act, in addition to providing a private cause of action for employees, grants the Mayor the right to levy administrative penalties on employers. For each violation of the Act, the Mayor may assess a fine between $350 and $1,000; and for retaliatory acts, a fine not less than $1,000. The Act equips employees the right to sue employees to recover between $500 and $2,500 depending on the violation and at least $3,000 for subsequent violations.
Covenants Not Covered by the Act
Notably, the Act does not apply to restrictions imposed on employers from disclosing the employer’s confidential, proprietary, or sensitive information; client list; customer list; or a trade secret. Likewise, the Act has no bearing on restrictive covenants agreed upon during the course of a sale of a business. Noticeably absent from the Act is any reference to non-solicitation clauses, so presumably DC employers are still allowed to forbid employees from soliciting colleagues to work elsewhere. A committee report prepared by the DC Council, in fact, explains that a non-solicitation agreement could be a suitable substitute for a non-compete agreement.
Compared to regulations elsewhere, the Act may be the broadest anti-non-compete legislation in the country. Its breadth and scope cannot be understated: it applies to just about any private DC employee, no matter his or her income, and allows employees to find concurrent employment, even for a competitor. With the impending application of the Act, DC employers would do well to confer with their lawyers to scrutinize their employment contracts and workplace policies with a fine-tooth comb. With such an overhaul imposed by the Act, anything less will lead to significant exposure. Employers should instead tether their restrictions to the critical protections necessary to prevent the dissemination and use of their confidential and proprietary information. In other words, an employer may be able to restrict employment if it can adduce evidence that an employee or former employee has or will disclose and use such information.
You may follow the trajectory of the Act here. As always, employers are advised to consult with trusted counsel well-versed in implementation, interpretation, and rollout of restrictive covenants to ensure compliance with the law.