Washington DC Scales Back Non Compete Ban
ICYMI, on July 27, 2022, the District of Columbia Council passed the Non-Compete Clarification Amendment Act of 2022 (“DC Clarification Act”), voting to amend the District of Columbia’s Ban on Non-Compete Agreements Amendment Act of 2020 (“DC Act”). The DC Clarification Act effectively undoes many of the complete “ban” provisions contained in the original DC Act, and provides a number of additional provisions to which DC employers should respond.
Effective October 1, 2022, the DC Clarification Act permits employers to require “Highly Compensated Employees” (which term specifically excludes “broadcast employees”) who earn at least $150,000.00 per year ($250,000.00 per year for “medical specialists”) to sign non-competition agreements, so long as the restrictive covenants meet certain conditions pertaining to scope, geographic limitation, and a term not to exceed 1 year (2 years for medical specialists).
The DC Clarification Act reduces the employee coverage count of the DC Act – this means that “covered employees” are employees who spend (or are expected to spend), more than half of their time working in DC, or who regularly spend, or are expected to spend, a substantial amount of work time in DC and not more than 50% of their work time in another jurisdiction. Employers are prohibited from requiring or requesting a covered employee who earns, or is reasonably expected to earn, less than $150,000 annually (or $250,000 annually for “medical specialists”) to sign an agreement or comply with a workplace policy containing a non-competiton provision. For incumbent employees, the compensation threshold is measured by looking at the employee’s compensation in the consecutive 12-month period preceding the date on which the proposed term of the non-compete is to begin. An employer may not require or request any covered “broadcast employees” to sign or comply with a workplace policy containing a non-compete provision, regardless of their annual compensation.
Other key takeaways from the DC Clarification Act include the following:
The original law would have prohibited anti-moonlighting provisions and would have required very carefully crafted “duty of loyalty” workplace policies/provisions. The DC Clarification Act removed from the definition of prohibited "non-compete provision" these two restrictions: (1) confidentiality/non-disclosure agreements; and (2) dual employment, where there is a conflict of interest or disclosure of confidential information.
o An employer with a workplace policy that includes one or more of the exceptions to the definition of a non-compete provision must provide a written copy of the excepted provision(s) to an employee within 30 days of the employee’s acceptance of employment, within 30 days after October 1, 2022 (the effective date of the DC Clarification Act), and any time such workplace policy is revised.
Employers must provide non-competition provisions to prospective “highly compensated employees” in writing, at least 14 days prior to the employee’s start date, and at least 14 days before any existing “highly compensated employee” must execute a non-compete provision.
o Employers must also provide this specific notice to a “highly compensated employee” whenever a non-competition provision is proposed:
The District’s Ban on Non-Compete Agreements Amendment Act of 2020 limits the use of non-compete agreements. It allows employers to request non-compete agreements from highly compensated employees, as that term is defined in the Ban on Non-Compete Agreements Amendment Act of 2020, under certain conditions. [Name of employer] has determined that you are a highly compensated employee. For more information about the Ban on Non-Compete Agreements Amendment Act of 2020, contact the District of Columbia Department of Employment Services (DOES).
Employers may not retaliate against an employee who refuses to agree to or comply with a non-compete provision that is prohibited by the terms of the Act and may not retaliate against a “highly compensated employee” for asking for a copy of his or her or their signed non-competition agreement.
Employers who violate the law are subject to administrative penalties of $350 to $1,000 per violation. Employers who violate this law are also liable to employees, in the amount of $500 to $1,000 per violation.
DC employers should review the DC Clarification Act and evaluate current and prospective practices and policies regarding restrictive covenant agreements, to ensure compliance with this legislation.