Employee Non-Compete Agreements Banned in D.C.

On January 11, 2021, the District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), joining a growing number of states that prohibit employers from requiring employees to sign non-compete agreements. The Act is expected to go into effect on March 19, 2021, following a mandatory 30-day congressional review period and publication in the District of Columbia Register. The broad restrictions indicated in the Act apply only to those non-competition agreements entered into after the proposed March 19 effective date, leaving non-compete agreements entered into prior to the effective date unaffected. Employers with District of Columbia employees are encouraged to review their employment agreements and workplace policies and revise them according to these new rules.

Summary

D.C. will prospectively ban non-compete agreements beginning March 19, 2021. The new law will protect D.C. employees’ right to freely change jobs but may cause strain to businesses employing DC workers who seek to prevent their highly paid executives from working for a competing company. The sweeping law represents a growing national trend towards more progressive legislation protecting workers’ rights.

What is covered by the Act?

Although non-competes restricted by time, geographic area, and scope have been generally been permissible, the Act now prohibits all non-compete agreements in the District of Columbia. The sweeping rule includes written agreements as well as workplace policies. Non-compete agreements cannot be enforced both during and after employment. Practically speaking, this means that any employee may work for a direct competitor of his or her employer or set up his or her own directly competitive business, at any time, including while the employee is employed by his or her employer.

In addition to the prohibition on non-compete agreements, employers must also be careful not to retaliate or threaten to retaliate against an employee (1) who refuses to sign a non-compete agreement; (2) who allegedly fails to comply with an unlawful non-compete agreement; (3) who asks, informs, or complains about the existence, applicability, or validity of a non-compete provision or workplace policy that the employee reasonably believes is prohibited under this Act; or (4) who requests the required notice from the employer.

Who is covered by the Act?

District of Columbia employees and employers employing District of Columbia employees are covered by the Act. “Employee” means an individual who performs work in the District on behalf of an employer and any prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the District. “Employer” means 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. The Act does not specify what “operating in the District” means.

Employers are required to provide notice to D.C. employees.

Employers are required to provide notice of these restrictions to employees as stated in the Act. The notice must contain specific language quoted in the Act and must be given in writing no later than 90 days upon effective date. New employees must be provided with the notice within seven calendar days of their hire date, and employees who request the statement in writing must receive it no later than 14 days after making a request. The notice must contain this text: “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.”

Who is not covered by the Ban on Non-Compete Agreements?

The Act does not cover District of Columbia businesses that do not employ D.C. workers. The following individuals and professions are also not covered under the ban: (1) an individual who, without payment and without expectation of any gain, directly or indirectly, volunteers to engage in the activities of an educational, charitable, religious, or nonprofit organization; (2) a lay member elected or appointed to office within the discipline of any religious organization and engaged in religious functions; (3) an individual employed as a casual babysitter, in or about the residence of the employer; or (4) medical specialists. Medical specialists are individuals who perform work in the District of Columbia on behalf on an employer engaged primarily in the delivery of medical services and who: (1) holds a license to practice medicine; (2) is a physician; (3) has completed a medical residency; and (4) has total compensation of at least $250,000 per year.

Medical specialists must be provided with the non-compete provision at least 14 days before execution of the agreement containing the provision and given the following written notice:

“The Ban on Non-Compete Agreements Amendment Act of 2020 allows employers operating in the District of Columbia to request non-compete terms or agreements (also known as “covenants not to compete”) from medical specialists they plan to employ. The prospective employer must provide the proposed non-compete provision directly to the medical specialist at least 14 days before execution of the agreement containing the provision. Medical specialists are individuals who: (1) perform work on behalf of an employer engaged primarily in the delivery of medical services; (2) hold a license to practice medicine; (3) have completed a medical residency; and (4) have total compensation of at least $250,000 per year.”

Can employers still protect confidential information and trade secrets?

Yes. The Act specifically excludes from the definition of a “non-compete provision,” an otherwise lawful provision that restricts the employee from disclosing the employer's confidential, proprietary, or sensitive information, client list, customer list, or a trade secret.

When can non-compete agreements be enforced?

Similar to the carve-out in other states, including California, non-compete agreements are permissible in the case of a sale of a business where the seller agrees not to compete with the buyer’s business.

What will happen if an employer fails to comply with the Act?

Employers may be assessed an administrative penalty in addition to any relief owed to employees. For violations of the ban on non-compete agreements, the Mayor may assess a penalty of $350 to $1,000. For instances of retaliation, employers will be assessed a minimum penalty of $1,000.

Employees are also entitled to relief payments from an employer found liable of violating the Act. Employees will be entitled to $500 to $1,000 for each violation of the ban on non-compete agreements or the notice provision, and a minimum of $3,000 for each subsequent violation for which the employer is found liable. If an employer attempts to enforce an unlawful non-compete provision, the employee may be entitled to a minimum of $1,500. Employers will be liable for a minimum of $3,000 for each subsequent attempt to enforce an unlawful non-compete agreement. In the instance of retaliation, employers will be liable to employees in the amount of $1,000 to $2,500, and a minimum of $3,000 for each subsequent retaliation for which the employer is found liable.

In compliance with the new legislation, existing employee offer letters, employment agreements, restrictive covenant agreements, and workplace policies will need to be reviewed and amended to align with the Act. At Kimberly Shin Law Firm PLLC, we can help you review your employment agreements. We create customized employment agreements, independent contractor agreements, intern and volunteer agreements, employment manuals, and employment applications for your small business.

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