On January 11, 2021, District of Columbia (“D.C.”) Mayor Muriel Bowser signed into law the Ban on Non-Compete Agreements Amendment Act of 2020, joining a few other jurisdictions in instituting near-total bans on the use of non-compete clauses by employers. In recent years, several jurisdictions have begun to legislatively limit the enforcement of non-compete agreements; however, only a few jurisdictions have instituted almost complete prohibitions on the use of non-compete agreements. D.C. jumps to the head of the pack with the passage of its new non-compete legislation, which is projected to go into effect on March 15, 2021.
As the new law provides protection to the vast majority of D.C. employees and imposes significant liability on employers who fail to comply, employers with workers in D.C. should be prepared to review and revise their agreements and policies restricting outside employment by their employees—both during and after employment.
The law covers businesses and employees operating within D.C. An “employee” is any “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.” Section 101(2). The statute excludes those performing volunteer work and laypersons engaging in religious functions. Id. An “employer” is “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 employee.” Section 101(3). The Governments of D.C. and the United States are excluded from the definition of “employer.” Id.
Under the law, only non-compete provisions are prohibited. These are defined 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.” Section 101(5) (emphasis added). Thus, D.C. employers cannot restrict current employees from working for others.
Notably, a non-compete provision does not include: (1) an otherwise lawful provision restricting an “employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or a trade secret;” or (2) an otherwise lawful provision in an agreement between a seller of a business and the buyer(s) “wherein the seller agrees not to compete with the buyer’s business.” Id. Thus, the law continues to recognize that businesses have the right to safeguard their trade secret and business information. It does not, however, seem to address the need to restrict outside employment in actual or perceived conflict of interest situations. The law also does not address provisions that may limit the ability of former employees to solicit their employer’s clients or customers.
The law contains a blanket prohibition against requiring employees to sign non-compete provisions, as defined above. Section 102(a). The law also prohibits employers from having policies that operate as non-compete provisions. Section 102(c). In addition to banning non-compete provisions, employers are prohibited from retaliating against employees who: (1) refuse to agree to a non-compete provision; (2) fail to comply with a non-compete provision or workplace policy; or (3) ask, inform, or complain about the existence, applicability, or validity of a non-compete provision or workplace policy that the employee reasonably believes is prohibited under this title. Section 102(d).
Finally, the law also requires employers to notify their employees of the content of the legislation. Section 102(e). Employers are required to notify their current employees of the prohibition on non-compete policies or agreements within 90 calendar days of the law becoming effective. New employees must receive notice of the prohibition within 7 calendar days of becoming an employee. Section 102(e)(1). The law requires the notice to contain the following language:
“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.”
If an employee makes a written request for information regarding the non-compete policy or provision, an employer must provide this notice within 14 days of receiving such request. Section 102(e)(1)(C).
The law excludes from its coverage medical specialists who perform “work in the District on behalf of an employer engaged primarily in the delivery of medical services” and who meet the following criteria: (1) are a holder a medical license; (2) are a physician; (3) completed a medical residency; and (4) are compensated at least $250,000 per year. Section 101(4). For medical specialists meeting this definition, the law requires that employers provide the proposed non-compete provision to the medical specialist at least 14 days before executing the agreement. Additionally, the employer must provide the following notice, in writing, to the medical specialist at the time the employer provides the proposed non-compete provision:
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 the 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.
There are no other exclusions in the law.
An employee who believes the law is being violated, including the notification or anti-retaliation provisions, can file an administrative complaint with the Mayor or a civil action in a competent court. The Mayor has the authority to investigate any complaints and issue administrative decisions regarding compliance with the statute. Section 104(d). If the Mayor determines that the section has been violated, the Mayor must notify the employer of the violation and the administrative penalty to be imposed, and provide an opportunity for the employer to request a formal hearing. Section 104(b)(2). Once a final administrative decision has been made, appeals can be taken to the District of Columbia Court of Appeals.
The statute authorizes specific penalties for violations of the law’s requirements. The Mayor may not assess a penalty of less than $350 or more than $1,000 per violation of the core prohibitions, but violations of the anti-retaliation provisions must be assessed at not less than $1,000 per violation. Section 104(b)(1). An employer who fails to comply with the non-compete prohibition or to notify its employees of such prohibition is liable for between $500-$1,000 per violation. Subsequent violations will be assessed a higher penalty of not less than $3,000 per violation.
Employers will also be liable to their employees for each violation of the provision. An employer who attempts to enforce a non-compete provision will be required to provide relief in an amount not less than $1,500. Subsequent violations will be assessed at an amount not less than $3,000 for each impacted employee. Employers who are found to violate the anti-retaliation provisions are liable to the employee at issue in an amount between $1,000 and $2,500. Subsequent violations will result in liability of an amount not less than $3,000 for each affected employee.
The general trend in legislation and jurisprudence has been to limit the applicability of non-compete agreements. However, the D.C. prohibition is one of the few which essentially creates a blanket ban on the use of non-compete provisions. The statute authorizes regulations, which may be issued by the Mayor to implement the provisions of this statute, including “rules requiring employers to keep, preserve, and retain records related to compliance with this title.” Section 105. Employers in D.C. should pay attention to these regulations, which may further clarify prohibited behavior and the penalties which will be assessed. In the meantime, employers in D.C. should review and update their policies and employment contracts to ensure compliance with the provisions of this new legislation.