The ongoing saga of Washington, DC’s expansive non-compete bill appears to be nearing its end, as the DC Council recently scaled back the originally passed “D.C. Ban on Non-Compete Act of 2020.” While the amended law still imposes significant restrictions on non-compete agreements for employees living or working primarily in DC, the most recent revisions are a step away from the near-total ban on non-competes that the Council originally passed. The new provisions go into effect on October 1, 2022, barring an unlikely veto from Congress or further revisions from the DC Council.
The History of DC’s Non-Compete Bill
We’ve previously written about DC’s proposed non-compete bill (“the Bill”) and the various forms it has taken since its introduction back in 2019. As initially proposed, the Bill would have banned the use of non-compete agreements for employees who worked in DC below a certain income threshold. While readers of this blog will know that local income thresholds for non-competes are increasingly common, the language of the Bill was concerning for a few reasons: the income threshold (at the time, $87,654) was among the highest in the country, the income threshold was tied to the DC minimum wage (which has changed roughly once every 1.5 years in the past 15 years), and the calculation of income was somewhat convoluted for salaried employees. Perhaps most concerning, the Bill would have banned anti-moonlighting provisions: employees below the income threshold could not be prohibited from working for another employer, even a competitor, during the term of employment.
Rather than address those concerns, the DC Council went a step further. As we detailed here, on January 11, 2021, Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (“the Act”), which would have banned virtually all non-compete restrictions regardless of the employee’s income level (with a series of odd carve-outs for categories of workers like babysitters and lay employees of religious organizations). As drafted the Act would have also arguably applied to an employee who performed any work in the District or an employer who had any operations in the District, causing considerable concern over which employees and employers were covered. The anti-moonlighting language in the original Bill appeared to be clarified by the DC Council in the summer of 2021, but the final language of the Act and its effective date were still to be determined, owing in large part to the requirement for Congressional approval of bills passed by the DC legislature.
The Non-Compete Clarification Amendment Act of 2022
It now appears that DC’s statutory framework for non-compete restrictions has taken its final form. On July 12, 2022, the DC Council passed the Non-Compete Clarification Amendment Act of 2022 (“the Amendment”). While the Amendment addresses some employer concerns about the overbroad language of the prior versions, the new law will still significantly curtail the use of non-compete agreements for employers and employees in DC The highlights of the Amendment include:
- Rather than the total ban on non-competes passed in early 2021, the Amendment reverts back to barring non-competes below an income threshold. Moreover, rather than the earlier, somewhat-convoluted income calculations based on the DC minimum wage, the Amendment just uses a set number: non-competes are permitted for individuals making over $150,000 annually (including most any kind of compensation except certain non-monetary benefits) or $250,000 for “medical specialists.” This amount will increase starting in 2024 based on the Department of Labor’s Consumer Price Index. There is also a specific carve-out for employees working in broadcasting (other than sales representatives).
- Even for highly-compensated employees for whom non-competes are permissible, the new law imposes some strict limitations on those restrictions. The non-compete must detail exactly what roles, industries, or competing entities the individual cannot work in or for, and specifically describe the geographic scope of the restriction. Non-competes for qualifying employees are limited to 1 year (2 years for medical specialists). Employers must also provide individuals with a copy of the agreement at least 14 days before the start of employment or the required date for execution of the agreement, and must provide the employee with specific notice language advising the employee of the new law and its limitations.
- In response to employer concerns, the Amendment gets rid of the total ban on anti-moonlighting provisions, but still limits them to situations where the outside employment might result in disclosure or use of confidential information, cause a conflict of interest, cause a “conflict of commitment” (for employees in higher education), or affect the employer’s ability to comply with any applicable laws. To the extent that employers believe any employee falls within those exceptions, they must provide employees with a written copy of the relevant provisions by October 31, 2022, or any time the policy changes (for newly-hired employees, within 30 days of acceptance of employment).
- Rather than applying to any employee who performs any services in DC, the Amendment states that it only applies to (1) employees who spend (or for prospective employees, are anticipated to spend) more than half their time working in DC for the employer, or (2) if the employer is based in DC, employees who “regularly” spend a “substantial amount” of time working in DC, and not more than half their time working for the employer outside of DC.
The Amendment also makes clear that non-competes in the context of a sale of business are protected and that non-disclosure agreements designed to protect confidential and proprietary information of the employer. While the Amendment is silent as to non-solicit restrictions, every indication is that those are still permitted: as we noted in prior posts, the DC Council committee comments specifically referenced non-solicit provisions as a permissible alternative to non-competes.
Assuming that the Amendment passes in its current form, DC will have taken a step back from what would have been one of the most restrictive laws in the nation regarding non-competes. That being said, the Amendment and the underlying DC Ban on Non-Competes Act of 2020 still present a challenging statutory framework for any employer based in DC or with significant operations there. As detailed in our prior posts, that framework includes a complicated set of record-keeping requirements and potentially stiff penalties from the DC Attorney General for non-compliance, and it also includes “workplace policies,” even unwritten ones, within the scope of non-compete restrictions. The law is not retroactive but any employer with significant operations in DC should takes steps now to ensure compliance before the October 1, 2022, effective date.