On January 11, 2021, the Mayor of D.C signed the "Ban on Non-Compete Agreements Act of 2020". It will become effective upon the completion of a 30-day congressional review period unless Congress overturns it (at this stage, unlikely). This Act is arguably the most restrictive approach to non-compete agreements nationwide.
What Does the Act Say?
The Act includes a number of employer requirements and prohibitions.
In particular, the Act:
Prohibits employers from requiring (or even requesting) an employee or prospective employee to sign an agreement containing a non-compete provision.
Voids any non-compete agreements entered after the Act's effective date.
Bans employer policies that prevent employees from any of the following activities (even if those activities are in competition with the employer):
- simultaneously being employed by another person;
- performing work or providing services for pay for another person; and
- starting or operating their own business.
Prohibits employers from retaliating (or threatening to retaliate) against employees who (i) refuse to sign a non-compete, (ii) fail to comply with a non-compete workplace policy, (iii) ask, inform, or complain about the existence, application, validity, or enforcement of a non-compete action prohibited by the Act; or (iv) request information required to be disclosed by the Act.
Requires employers to provide written notice to employees of the Act. Written notice must be provided to employees no later than 90 days after the effective date of the Act, within 7 days of hiring a new employee, and within 14 days of an employee’s request.
Applies retroactively to employer non-compete policies, but not to non-compete agreements entered before the Act's effective date.
The Act has a few minor exceptions - namely non-competes associated with the sale of a business, some medical specialists, and volunteers of educational, charitable, religious, or non-profit organizations.
Importantly, the Act does not apply to contractual provisions that restrict employees from disclosing an employer's confidential proprietary, or sensitive information, client/customers lists, or trade secrets. These 'confidentiality agreements' are safe provided they do not include offending non-compete provisions.
Who Does the Act Apply To:
The Act applies to businesses "operating in the District" and their employees who "perform work in the District."
Unfortunately, the Act fails to define the meaning of "operating in the District" or establish a quantitative measurement for "perform[ing] work in the District." Absent future guidance or an amendment, it's not entirely clear to whom the Act applies.
Employers will have to wait for until the Act becomes effective and is interpreted by the courts through litigation before we know the full extent of its application. Until then, we recommend that all D.C. employers and employers with employers working in the District to comply with the law to avoid penalty.
What Are the Penalties for Non-Compliance
In true punitive fashion, the Act provides for both administrative penalties and damages for non-compliant employers.
Penalties range from $350 - $1,000 per violation, though penalties for retaliation cannot be below $1,000.
Damages range from $500 - $2,500 per violation, per employee, depending on the violation. Subsequent violations attract a minimum of $3,000 to each affected employee.
Aggrieved employees can also file a civil action or administrative complain with D.C.'s Mayor.
Why Would They Do This?
D.C. Council premised the adoption of the Act upon its view that non-competes depress wages, inhibit employee mobility, limits entrepreneurship, and reduces the number of jobs in the market.
What Do I Do Now?
Employers with employees in D.C. should update employment agreements, separation agreements, workplace policies, restrictive covenants, and onboarding procedures, as soon as possible. They should also prepare their written notices to employees ahead of the Act's effective date.
If you are a D.C. business, or a business with employees working in the District, contact Out-House Attorneys, LLC. to get your contracts, workplace policies, and HR procedures in compliance with the Act, and to protect your confidential information.
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