On January 11, 2021, District of Columbia Mayor Muriel Bowser signed into law the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”) Under the Act, the District of Columbia will implement one of the most far-reaching prohibitions on non-compete agreements in the country. Previously, on December 17, 2020, the District of Columbia Council unanimously passed the Act, which will apply to nearly all employers and employees in the District of Columbia, regardless of income level.
A non-compete agreement is a contract between an employee and their employer that limits the employee’s ability to work for a competitor. These agreements have come under criticism, particularly when issued to workers earning lower wages or lacking specialized skills since they can limit a worker’s upward mobility. Under the Act, non-compete agreements entered into on or after the Act’s applicability date will be deemed void, with limited exceptions.
Prohibitions
The Act prohibits employers from requiring or requesting that an employee sign an agreement with a non-compete provision or maintaining workplace policies that prevent an employee from:
- “being employed by another person,”
- “performing work or providing services for pay for another person,” or
- “operating the employee’s own business.”
Moreover, in a sharp departure from prior DC law, the Act defines a “non-compete provision” to include an employer’s attempt to restrict employees from “being simultaneously or subsequently employed” – effectively prohibiting DC employers from enforcing anti-moonlighting policies.
Notice Requirements
The Act will also impose certain requirements on DC employers, including the requirement that employers provide employees with written notification concerning the Act. Specifically, employers will be required to provide DC-based employees written notification that “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.” Under the Act, DC employers must provide the above language to all DC-based employees (i) within 90 days of the effective date of the Act; (ii) seven calendar days after an individual becomes an employee, and (iii) within 14 calendar days after receipt of a written request from an employee.
Penalties
Employer penalties for noncompliance with the Act include administrative penalties of $350 to $3,000 for each violation. Additionally, the Act includes an anti-retaliation provision, permitting employees who are asked to sign a non-compete agreement banned by the Act or who suffer retaliation from an employer for activities prohibited by the Act, to file an administrative complaint with the Mayor. The Act also provides a private right of action for employees and further provides that Section 8 of DC’s wage act, which provides for an award of costs and attorneys’ fees to a prevailing employee, shall apply to such civil actions.
Exceptions
Exceptions to the Act include a carve-out for non-compete agreements entered into simultaneously with the sale of a business, permitting a buyer of a business to enforce a non-compete agreement prohibiting the seller from competing with the buyer. The Act also does not prohibit confidentiality agreements that prevent an employee from disclosing their employer’s confidential, proprietary, or sensitive information, client or customer lists, or trade secrets. Employees exempted from the Act include “medical specialists” earning at least $250,000 in compensation per year.
Effective Date
Under DC’s regulatory process, the Act is sent to Congress for a thirty-day legislative review period. Assuming Congress takes no action on the legislation, the Act is expected to go into effect shortly thereafter. We will continue to monitor this situation and update you when the Act goes into effect. As noted above, the Act is not retroactive and will apply to prohibit non-competition agreements entered into on or after the effective date of the Act.
If you have any questions related to this legislation or compliance with its employer requirements, or any other employment related issues, please contact the authors of this Alert, Patrice Clair, pclair@fordharrison.com, partner in our Washington D.C. office, Max Bernas, kmbernas@fordharrison.com, an associate in our Washington, D.C. office, or the FordHarrison attorney with whom you usually work.