In July 2022, the DC Council approved modifications to its previously enacted Ban on Non-Compete Agreements Amendment Act (the "Act"), previously discussed here. The Act, which had yet to take effect, contained some of the strictest prohibitions on employee non-compete clauses in the country and effectively barred employers in most circumstances from using non-compete agreements, both during the employee's tenure and after their termination. The recently approved Non-Compete Clarification Amendment Act of 2022 (the "Amendment") scales back some of the more extreme portions of the Act (together, the "Amended Act"). The Amended Act goes into effect October 1, 2022, barring congressional action.
Below, we detail many of the key revisions made to the Act, but in short, employers remain prohibited from entering into non-compete agreements with many of their employees. Employers may enter into non-compete agreements with their "highly compensated" employees under certain conditions, including:
- Limiting the agreement to one year after separation from employment
- Detailing exactly what roles, industries, or competing entities the individual cannot work in or for, and the geographic scope of the restriction
- Providing individuals with the agreement, in writing, at least 14 days before the start of employment or the required date for execution of the agreement
Employers also need to provide specific notice language advising the employee of the new law and its limits.
Covered Employees
Subject to limited exceptions, the Amended Act still bans non-compete agreements for many lower-wage employees. The Amended Act applies to those who either spend or are anticipated to spend more than half of their working time in DC or who (if their employment is based on in DC) regularly spend a "substantial amount" of work time in DC. This clarification is a welcome addition, as the previous language arguably applied to any employee who performed any work in DC.
The Amended Act now permits employers to enter into non-compete agreements with "highly compensated" employees — i.e., those who make over $150,000 annually. This amount is scheduled to increase starting in 2024 based on the Consumer Price Index as published by the Department of Labor's Bureau of Labor Statistics. Compensation is not limited to salary and may include bonuses, commissions, overtime premiums, vested stock, and other payments provided on a regular or irregular basis (but not fringe benefits, unless they are paid in cash or a cash equivalent).
The Amended Act also protects employees against retaliation for questioning or complaining about a potentially improper non-compete agreement. The Amended Act sets modified standards for non-competes entered into with "medical specialists."
Moonlighting Ban Lifted
Under the Amendment, employers may prohibit moonlighting where the employer "reasonably believes" the secondary employment will "result in the employee's disclosure or use of confidential [] or proprietary employer information" or will "conflict with the employer's, industry's, or profession's established rules regarding conflicts of interest." However, if an employer plans to utilize one of these exceptions, it must provide employees with a copy of the policy within certain time frames. Under the original Act, employers were prohibited from maintaining workplace policies that prevented employees from engaging in secondary employment, even if that employment competed directly with the employer or created a conflict of interest.
Permissible Agreements
Finally, the Amendment offered several clarifications regarding what agreements are permissible under the law, including:
- Non-compete agreements in the context of the sale of a business
- Non-disclosure agreements designed to protect confidential and proprietary information of the employer
- Non-compete provisions within "long-term incentive" agreements such as bonuses, equity compensation, and other performance-driven incentives for individual or corporate achievements typically earned over more than one year.
The Amended Act is silent as to non-solicit restrictions; these appear to remain lawful.
Notice Requirements
The Amended Act also imposes several notice requirements on employers who intend to use non-compete agreements or who have workplace policies which may be interpreted as a non-compete agreement (such as a permissible prohibition on moonlighting or a conflict of interest policy). Employers must provide a written copy of these policies to employees within 30 days after October 1, 2022, within 30 days of the start of employment, and anytime the policy changes.
If an employer intends to use a non-compete provision with a highly compensated employee, the employer must provide the non-compete provision to the employee in writing at least 14 days before the employee's employment begins or allow 14 days' review of the agreement prior to execution.
Enforcement and Penalties
The enforcement, penalty, and anti-retaliation provisions of the Amendment remain largely unchanged; employers who fail to comply with the law could face an administrative action or a civil lawsuit.
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Employers with DC employees should become familiar with the Amended Act's requirement and should be prepared to comply with it on October 1, 2022. Even employers who do not typically use non-compete agreements should review their employment policies and comply with any notice provisions under the Amended Act. For assistance with your non-compete agreements and related policies, please contact the authors of this article or any member of the Venable Labor and Employment team.