On December 17, 2020, the District of Columbia Council wrapped up 2020 by passing the Ban on Non-Compete Agreements Amendment Act of 2020 (the "Act"), one of the broadest prohibitions on the use of non-competition agreements in the country. Last week, on January 11, 2021, D.C. Mayor Muriel Bowser signed the Act into law. If the Act becomes effective, D.C. will join a growing number of states that prohibit employers from requiring employees to sign non-compete agreements. Unlike the restrictions in most other jurisdictions, however, the Act will create not only an almost complete ban on non-compete agreements in the District of Columbia, but it also will prevent covered employers from prohibiting employees from competing during their employment.
Effective Date
The Act is expected to go into effect following the expiration of the 30-day congressional review period, which will begin once the Act is transmitted to Congress. Fortunately for employers, the Act is not retroactive. Rather, the Act's broad restrictions will apply to prohibit only those non-competition agreements entered into after the effective date, apparently leaving non-compete agreements entered into prior to that date unaffected.
Covered "Employees" and "Employers"
Unlike the non-compete prohibitions in many other jurisdictions, the Act does not have an income threshold that limits its applicability to certain groups of employees, such as low-wage workers. Instead, the Act applies to nearly all employees "who perform[] work in the District" on behalf of a covered employer and to prospective employees "who an employer reasonably anticipates will perform work" in D.C., unless they fall within one of the narrow exceptions below:
- Volunteers engaged in the activities of an educational, charitable, religious, or nonprofit organization;
- Lay members elected or appointed to office within the discipline of any religious organization and engaged in religious functions;
- Casual babysitters; and
- Certain medical specialists engaged primarily in the delivery of medical services.1
The Act defines "employer" as "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." Notably, the Act does not specify what it means to be "operating in the District."
Similarly, it remains unclear what level of work "perform[ed] in the District" will trigger the Act's restrictions, or whether the Act is intended to apply to all employees who perform any amount of work in the District. Without further guidance from the Council, these definitions leave many questions unanswered, particularly for out-of-state employers who have employees performing work remotely in D.C. or have employees who regularly travel to D.C. for work.
Restrictions and Requirements
The Act prohibits employers from requiring or requesting that an employee sign an agreement with a non-compete provision. Any agreement with a non-compete provision entered into on or after the effective date of the Act will be deemed void as a matter of law and unenforceable. The Act does not appear to prohibit agreements or policies that merely restrict employees from soliciting employees or customers, clients, or other business partners.
Employers also may not maintain workplace policies that prohibit employees from: (i) being employed by another person; (ii) performing work or providing services for pay for another person; or (iii) operating the employee's own business. "Workplace policy" is defined as "the rules and restrictions, whether written or as a matter of practice, implemented by an employer to govern the conduct of the employer's employees."
The Act requires employers to provide notice of these restrictions to employees. Such notice must contain the specific language quoted in the Act and must be given, in writing, no later than (i) ninety (90) calendar days after the effective date of the Act; (ii) seven (7) calendar days after an individual is employed by a covered employer; and (iii) fourteen (14) calendar days after the employer receives a written request for such statement from an employee.
Non-Compete Provisions
One of the most surprising aspects of the Act is its broad definition of a "non-compete provision." The Act defines it as "a provision of a written agreement between an employer and an employee that prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee's own business." In other words, if the Act becomes effective, it will bar covered employers from using both post-employment non-compete agreements and agreements (as well as workplace policies) preventing current employees from working for another employer during the employee's employment.
The Act provides two exceptions to this definition: (i) "[a]n 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;" and (ii) "[a]n otherwise lawful provision contained within or executed contemporaneously with an agreement between the seller of a business and one or more buyers of that business wherein the seller agrees not to compete with the buyer's business."
Anti-Retaliation
The Act prohibits employers from retaliating or threatening to retaliate against an employee for the following activities:2
- Their refusal to agree to a non-compete provision;
- Their alleged failure to comply with a non-compete provision or workplace policy prohibited by the Act;
- Asking, informing, or complaining about the existence, applicability, or validity of a non-compete provision or workplace policy that the employee reasonably believes is prohibited under the Act to an employer (including the employee's employer), a coworker, their lawyer or agent, or a government entity; and
- Requesting from the employer the statement required to be provided to employees in the notice.
Enforcement and Penalties
The Act vests administration and enforcement power in the D.C. Mayor and D.C. Attorney General, and provides for enforcement through a civil right of action or an administrative complaint procedure. Administrative penalties may also be assessed by the Mayor in an amount of no less than $350 and no more than $1,000, except that penalties for violations of the anti-retaliation provisions will be, at a minimum, $1,000 per violation. Violations of the non-compete restriction, the workplace policy restriction, the notice requirement, and the procedures for medical specialists may result in statutory remedies to be paid to the aggrieved employee or medical specialist in an amount ranging from $500 to $3,000 per violation.
The Act also provides for certain procedures governing the collection of administrative penalties, employer challenges to an assessment of administrative penalties, and employer recordkeeping requirements.
Additional Information
We will continue to monitor developments related to the Act and will provide updates as more information is released. For now, with the Act's broad enforcement mechanisms and statutory penalties, covered employers should begin to review their employment agreements and policies to ensure compliance with the Act if it becomes effective.
Employers seeking additional guidance on the Act should feel free to contact the authors of this article or an attorney in Venable's Labor and Employment Practice Group.
[1] The medical specialist exception is construed narrowly. The Act prescribes certain procedures that employers must follow when they seek to have a medical specialist execute a non-compete provision as a condition of employment, including delivery of the provision at least 14 days prior to its execution and written notice, as specified in the Act.
[2] The Act includes a separate provision prohibiting employers from retaliating against medical specialists for:
- Asking, informing, or complaining about conduct required or prohibited under the medical specialist exception to an employer (including the medical specialist's employer), a coworker, their lawyer or agent, or a government entity; and
- Requesting from the employer the statement required to be provided to the medical specialist pursuant to the prescribed procedures employers must follow to have a medical specialist execute a non-compete provision.