Further Unpacking D.C.’s New Ban on Non-Compete Agreements
In a recent post, we briefly discussed non-compete and no-poach agreements, including highlighting D.C.’s Ban on Non-Compete Agreements Amendment Act of 2020. The law, if it passes Congressional oversight – with no indication that it will not – will be become effective on or about March 8, 2021 (the next business day after the 30-day Congressional review period expires). The law, however, will not become applicable to employers until the law’s fiscal impact is certified in the District’s budget. Said differently, non-compete agreements will be allowed until sometime in the Fall – once the budget passes.
The law’s reach is expansive and will restrict employers’ ability to use non-compete agreements to control when and how their current and former employees can work with competitors.
Just How Expansive is D.C.’s Act?
Unlike other states, such as Maryland and Virginia, D.C.’s Act does not merely focus on precluding employers from entering into non-compete agreements or protecting low-wage employees. Instead, the law prohibits any agreement or provision that seeks to bar:
- an employee from simultaneously or subsequently being employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.
In other words, an employer (defined as “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District”), under the Act, will not be able to prevent an employee from working for it while also working for a competitor, or presumably becoming a competitor. Nor is an employer able to stop an employee from working for a competitor for any specific period after leaving its employment.
In addition to striking at written agreements, the Act precludes any workplace policy that would effectively prohibit the same. The workplace policy does not have to be in writing but only needs to be a rule or restriction that by implementation governs an employee’s conduct as a matter of practice.
The scope of who is protected under the Act is more expansive than in other states. The Act defines an employee as “an 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.” There are only four categories of workers who are not protected by the Act:
- volunteers of an educational, charitable, religious, or nonprofit organization who are unpaid and have no expectation of any gain, directly or indirectly;
- an individual who is elected or appointed to an office with any religious organization’s discipline and who engage in religious functions;
- a babysitter, hired casually, in or about the employer’s residence; and
- a medical specialist who works in the District primarily in medical services and who is a licensed physician who has completed a medical residency and has a total compensation of at least $250,000 a year.
Thus, the Act’s coverage is excessive, covering virtually every type of employee or prospective employee working in the District. Because the law is not retroactive, it does not apply to executed agreements that occur before the applicability date (sometime in the Fall) of the Act.
However, one particular wrinkle is how the law will apply to workplace policies that were in effect before the applicability date but whose impact extends past the applicability date. The law is silent on this issue, which could potentially expose employers to liability under the Act. Employers should do a thorough review of their employee handbooks and other workplace policies (written and unwritten) to identify policies that the law may implicate.
The law imposes notice obligations on employers. Employers must provide the following Notice to all employees:
- 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 Act of 2020.
Employers must provide the Notice to all employees within 90-days after the law’s applicability date, within seven days of a new employee’s hire date, and fourteen days of a written request from an employee to receive the Notice.
Suppose an employer wishes to have a medical specialist execute a non-compete provision as a condition of employment. In that case, it must provide the provision directly to the medical provision at least 14 days before the date of execution. Simultaneously, the employer must provide the following Notice:
- 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 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.
Duty Not To Retaliate
Further, employers may not retaliate against an employee for:
- refusing to agree to a non-compete provision;
- failing to comply with a non-compete provision or workplace policy;
- asking, informing, or complaining about the existence, applicability, or validity of a non-compete provision or workplace policy to the employer, coworker, lawyer, or governmental entity; or
- requesting a copy of the Notice.
Likewise, an employer is prohibited from retaliating against a medical specialist for (1) asking, informing, or complaining about conduct required or prohibited under the Act to an employer, coworker, lawyer, agent, or governmental entity; and (2) requesting the required Medical Specialist Notice.
Once the ban’s applicability date passes, it will create several administrative burdens and practical considerations. For starters, given that the Mayor’s office will now have the right to make regulations to enforce the Act and investigate allegations of potential violations, employers should expect D.C. to adopt regulations imposing recordkeeping obligations. The Act virtually ensures such recordkeeping obligations will be mandated as part of the Mayor’s authority to investigate includes the review of employer records.
Additionally, employers will need to assess their internal policies, especially conflict of interest policies or moonlighting policies, as they may inadvertently operate as a non-compete provision. Employers should also train their managers on avoiding retaliatory behavior under the Act to limit exposure.
Not to mention, violating the Act can lead to lawsuits by individuals who feel aggrieved or an administrative investigation by the Mayor. Administrative civil penalties will range from $350 to $3,000.