February 10, 2021 - Legislation, Non-Compete, Trade Secrets

The District of Columbia Joins Jurisdictions Banning Non-competes

On January 11, 2021, District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (“the Act”), effectively eliminating non-competes in Washington, D.C., except under very limited circumstances. The Act is anticipated to take effect on March 19, 2021. If the Act becomes effective, not only will it add D.C. to California, North Dakota, and Oklahoma as the jurisdictions in the U.S. completely banning post-employment non-competes, but it will go beyond those laws in prohibiting non-competes and anti-moonlighting policies during employment. The Act also continues the trend of states passing laws limiting the use of non-compete agreements.

Coverage

The Act applies to all private employers “operating” in D.C. It covers nearly all employees and prospective employees who perform work or are reasonably anticipated to perform work in D.C. for covered employers, with certain limited exceptions, including:

  • Volunteers engaging in the activities of a nonprofit, educational, charitable, or religious organization; and
  • Medical physicians with a medical license, who completed residency, and make over $250,000 per year.

Because there is no threshold for the amount of work employees must perform in D.C. to be covered by the Act, it is unclear whether the Act will apply to individuals based outside of D.C. that occasionally work in D.C. It is also unclear whether the phrase “operating within the District” will be interpreted to apply to private employers who do not maintain an office in D.C., but have employees who perform services or work in D.C.

Covered Non-competes

The Act bans covered employers from entering into or enforcing non-competes with covered employees, whether the non-competes are in a formal contract or part of the employer’s workplace policies or practices. Significantly, the Act bars non-competes and policies that prohibit employees from “simultaneously or subsequently” being employed by or performing services for another person or operating an employee’s own business. Accordingly, unlike other jurisdictions, such as California, that bar post-employment non-compete agreements, the Act goes one step further by banning non-compete agreements both during and after employment.

Agreements Not Covered

The Act does not impact any non-compete agreements that are signed before the effective date of the Act. The Act also expressly exempts non-compete agreements executed in connection with the sale of a business and agreements restricting employees from disclosing an employer’s confidential information or trade secrets. The Act is silent, however, as to whether agreements not to solicit an employer’s customers, vendors, or employees are prohibited.

Effective Date

Any non-compete agreements entered into after the Act is enacted will be void and unenforceable. The Act was sent to Congress on February 1, 2021 for review. Unless Congress rescinds the law, which seems unlikely given that the Democrats have the majority in both chambers of Congress, the Act is projected to be effective on March 19, 2021.

Retaliation Prohibited

The Act makes it illegal to retaliate or threaten to retaliate against an employee who refuses to agree to or comply with a non-compete agreement that violates the Act. Specifically, employers are prohibited from retaliating or threatening to retaliate against employees for:

  • Refusing to agree to a non-compete provision;
  • Failing to comply with a non-compete provision, whether in an agreement or a workplace policy; or
  • “Asking, informing, or complaining about the existence, applicability, or validity of a non-compete provision or a workplace policy that the employee reasonably believes is prohibited under” the Act to an employer.

Enforcement and Penalties

Employees have a right to either file an administrative complaint with the mayor or pursue a civil claim in court. The D.C. mayor and attorney general are responsible for administering and enforcing administrative claims under the Act. If the Act becomes law, the mayor will be required to issue rules to implement the Act. The D.C. mayor or attorney general may also require covered employers to make records required by the Act available for inspection. Employers found to violate the Act are subject to administrative fines ranging from $350 to $3,000 per violation.

Notice to Employees

If the Act becomes effective, employers must also notify employees in writing of the non-compete ban by using 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.

The notice must be provided to existing employees no later than: (1) 90 days of the Act going into effect using certain specified text in the Act; (2) seven days after hiring; or (3) 14 days after the employer receives a written request for such statement from the employee.

Looking Ahead

Employers with operations in D.C. or employees who work within D.C. should review their agreements and policies in light of the potential, significant changes to D.C. law. Since the Act aims to ban both post-employment non-competes and anti-moonlighting policies, employers will need to determine what agreements or policies they can put in place to protect themselves from unfair competition either before the Act takes effect or without the use of non-competes. Employers may want to consider trying to get non-compete agreements in place before the law takes effect. In addition, employers should also consider updating their confidential information policies and agreements, as well as their non-solicitation clauses, to ensure they can protect their rights to the greatest extent possible.

Because the Act might cover employees who only occasionally work in D.C., employers will also need to consider which employees might be covered by the Act. Although the Act will clearly apply to employees who are based in D.C., it remains to be seen whether employees only occasionally working in D.C. might be covered. Employers may want to consider whether they can use a choice of law provision in non-competes for non-D.C.-based employees to avoid the application of the Act.

With the Act being the latest in a trend of jurisdictions across the United States cracking down on non-compete provisions, it is important to continue to monitor developments in this area that may impact an employer’s non-compete strategies and practices. As we previously reported, other states have issued or have pending legislation significantly limiting the use of non-competes, including several states banning such agreements with low wage workers. It is also possible that there could be federal efforts to limit the use of non-competes under the Biden administration. On the campaign trail, President Biden said that he opposes non-compete clauses, “except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets.”