D.C. Bans Non-Compete Agreements
Date: June 2, 2021
By:
Rafiq R. Gharbi
The Ban on Non-Compete Agreements Act of 2020 was passed on December 15, 2020, signed into law on January 11, 2021, and made effective by Congress on March 16, 2021. 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 run their own business concurrently. The scope of the Act is broad, and extends to employees who perform work in DC, or employees whom an employer reasonably anticipates will perform work on behalf of the employer.
The Act awaits full enforceability after approval of its budget and fiscal impact, which is expected to happen in fall 2021.
In recent years, DC’s neighbors Maryland and Virginia also passed legislation banning non-competes. However, unlike DC, Maryland and Virginia’s laws are tied to certain salary thresholds. With no tie to employees’ salaries, DC’s new law is a nearly blanket prohibition on non-compete agreements.
The prohibition involves three core concepts. First, an employer may not require an 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 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. Non-compete agreements entered into prior to the Act’s applicability date (projected to be fall 2021) will survive the Act and still be enforceable. However, policies created and maintained prior to the Act will not survive, and their prohibition will be enforceable following the applicability date.
It is unclear what the effect of banning prohibitions on secondary employment will have. In today’s gig economy, some full-time employees choose to engage in after-hours jobs to supplement their income. But what about the highly compensated officer devoting time and loyalty to another venture that is competing with the prime employer, all the while reaping the benefits? 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.
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 far as individuals exempted from the Act, “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.
Consequences for non-compliance range from administrative fines arising from complaints filed with the DC Mayor’s office, to potential liability and damages arising out of the private cause of action created by the Act.
With enforcement of the Act on hold, now is the perfect time to revisit any potential issues with coming into compliance with the Act. As mentioned above, employers that have policies in place containing non-competition provisions should revisit their policies and handbooks to ensure they are brought into compliance. Employers should also prepare for the affirmative requirements the Act imposes. Once the fiscal review and budget are approved, the Act’s applicability date will be established. At that time, 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.
Whiteford, Taylor & Preston recently discussed this new legislation and more during its webinar, “Recent Changes in Federal, MD and DC Law.” If you have any questions regarding this new shift in DC 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.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.