Client Alert: Update to DC’s Ban on Non-Competes Takes Effect
Date: October 13, 2022
By:
Rafiq R. Gharbi
As it stands, the Act prohibits the use of agreements and policies which prohibit or discourage competition in employment. The new legislation also restricts employers from prohibiting secondary employment, creating a protection for employees with additional employment or who run their own business concurrently. The scope of the Act is broad, and generally covers employees who perform at least 50% of their work in Washington, D.C., or employees who an employer reasonably anticipates will perform work on behalf of the employer.
In recent years, D.C.’s neighbors Maryland and Virginia also passed legislation banning non-competes. Like Maryland and Virginia’s laws, DC’s non-compete ban has ties to certain salary thresholds. Notably, employees making $150,000 or more fall under a “highly compensated employee” exception, and there is a “medical specialists” exception with a salary threshold of $250,000.
The prohibition involves three core concepts. First, an employer may not require a covered employee to sign a non-compete agreement. Second, an employer may not maintain a non-compete policy. And third, an employer may not maintain a policy against secondary employment. Any retaliation based on an employee’s exercise of these protections afforded by the Act is also prohibited.
Losing the protections of non-compete agreements and policies may lead to companies having questions about how they can protect their business. Employers may still enter into and enforce confidentiality agreements to protect their client/customer lists and trade secrets, and may also require non-solicitation agreements. Conflict of interest agreements are also permitted under the Act and, if crafted properly, could prohibit employees from concurrently working for another entity if the employer reasonably believes that such work could result in the disclosure of confidential information or otherwise pose a conflict of interest.
There are a few limited exceptions to the Act’s coverage. The Act does allow for non-compete agreements between the seller and buyer of a business. As noted above, employers may enter into non-compete agreements with “highly compensated employees” making $150,000 or more. Additionally, “medical specialists” are exempt if they meet the following four requirements: 1) they hold a license to practice medicine; 2) they must be a physician; 3) they must have completed a medical residency; and 4) they must have a total compensation of at least $250,000 per year. Volunteers, officers of religious organizations, and casual babysitters are also exempted from the Act. Conversely, radio broadcasters are no longer subject to a special exception pursuant to the Broadcast Industry Contracting Freedom Act of 2002, and fall within the general scope of the Act.
The effect of banning prohibitions on secondary employment is unclear. In today’s gig economy, some full-time employees choose to engage in after-hours jobs to supplement their income. Employers should consider policies that protect confidential information and assets, and set clear expectations for potential conflicts of interest when it comes to secondary employment.
If you have not already done so, now is the time to revisit any potential issues in complying with the Act. As mentioned above, employers that have policies in place containing non-competition provisions should revisit their handbooks and policy documents to ensure they are compliant. Employers should also prepare for the affirmative requirements the Act imposes.
From October 1, 2022, onward, employers will have 90 days to provide notice of the Act to employees. Thereafter, new employees must receive notice of the Act within 7 days, and employees who request the notice must be given notice within 14 days. Keep in mind, some employees who fall within the covered exceptions may still require notice of the Act to comply with its provisions.
Consequences for non-compliance range from administrative fines arising from complaints filed with the D.C. Mayor’s office to potential liability and damages arising out of the private cause of action created by the Act.
Whiteford, Taylor & Preston regularly advises employers on issues related to non-compete agreements, non-solicitation agreements, conflict of interest policies, and other areas of labor and employment law. If you have any questions regarding this new shift in D.C. law, or are interested in learning about other legislative changes and what they mean for your business, please contact Rafiq Gharbi or an attorney in the Labor and Employment Section.