On January 11, 2021, District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the Act). The Act has significant implications for D.C. employers, even those that do not use non-competes or other restrictive covenants. Among other things, the Act:
- Bans nearly all employee non-competes, whether contained in a written agreement or a workplace policy (although non-competes in effect before the Act becomes law remain enforceable).
- Not only bans post-employment non-competes (e.g., prohibiting an employee from working for a competitor for a certain amount of time after employment ends), but also bans restrictions on an employee taking another job or running the employee’s own business during employment.
- Requires covered employers to provide a notice pertaining to the Act to current employees (within 90 days of the Act becoming law), new hires (within seven days of hire), and employees upon request (within 14 days of request).
- Employers who violate the Act face potential administrative penalties and may be sued by the D.C. Attorney General or by employees via a private right of action.
Absent Congressional action, the Act will become effective following a mandatory 30-day Congressional review period and publication in the District of Columbia Register. This blog post answers some of the most frequently asked questions about the Act.
Which employers and employees are covered by the Act? The Act applies to private employers “operating in the District.” It does not apply to the Federal or District of Columbia governments.
“Employee” is defined broadly as “an individual who performs work in the District on behalf of an employer,” as well as prospective employees the employer “reasonably anticipates will perform work on behalf of the employer in the District.” The Act excludes from the definition of “employee” volunteers engaged in activities for charitable, educational, religious, and nonprofit organizations; certain lay persons who hold office in religious organizations; “casual babysitters”; and “medical specialists.” (Medical specialists – defined as licensed physicians who have completed a residency, work for an employer engaged primarily in the delivery of medical services, and earn at least US$250,000 per year – may sign non-competes when certain requirements are met.)
It seems clear that the Act covers employees assigned to work at their employers’ worksites within the District. It also seems clear that the Act does not prohibit D.C.-based employers from entering into non-competes with employees whose work is performed entirely outside of the District. However, the Act’s application to other situations is uncertain. For example, is an employer that has employees working in the District, but does not itself have a D.C. office, “operating in the District”? Is an employee who primarily works outside the District but occasionally works in the District covered by the Act? The devil is in these details for multi-jurisdictional employers, particularly with many employees currently teleworking due to the COVID-19 pandemic.
What does the Act prohibit? The Act broadly bans agreements and workplace policies that prohibit an employee from: (1) being employed by another person; (2) performing work or providing services for pay for another person; or (3) operating the employee’s own business. Significantly, this ban extends not only to post-employment restrictions (e.g. a prohibition on working for a competitor for one year after employment), but also to agreements and policies prohibiting employees from working for others or themselves while still employed (so-called anti-“moonlighting” provisions).
Employers are understandably concerned about the impact of the Act’s ban on restrictions of concurrent employment, particularly as applied to high-level employees, whose work for another employer (or their own business) can cause substantial competitive or other harm. The Act specifically states that employers can continue to enforce otherwise lawful restrictions on the disclosure of confidential information and trade secrets. However, the Act is silent regarding the continued legality of non-solicitation provisions, which impose restrictions on current and/or former employees’ contacts with customers, vendors, or other employees. The Act is also silent as to its interaction with current employees’ common law duty of loyalty to employers, standard conflict of interest rules, and other policies commonly used to prevent unfair competition by employees, such as prohibitions on performing non-work activities during working time, or while using employer-provided devices.
What about currently-existing non-competes and restrictive covenants? Current non-competes and restrictive covenants are not invalidated. The Act applies only to agreements entered into once the Act becomes law.
Does the Act apply in the context of the sale of a business? The Act does not apply in the context of the sale of a business, when the seller contemporaneously agrees not to compete with the buyer’s business.
What notice must be provided to employees? The Act requires that, within 90 calendar days of the Act becoming law, employers must provide all covered employees the following notice: “No employer operating in the District of Columbia may request or require any employee working in the District of Colombia to agree to a non-compete policy or agreement, in accordance with the Ban on Non-Compete Agreements Act of 2020.”
Additionally, new employees must be provided with that notice within seven calendar days of their hire date, and employees who request the statement must receive it no later than 14 calendar days after making the request.
Does the Act prohibit retaliation? Yes. The Act prohibits employers from retaliating against employees who refuse to agree to or comply with an unlawful non-compete, or who ask or complain about a non-compete that the employee believes to be prohibited under the Act, or who requests information that the employer is required to provide under the Act.
What are the consequences of violation? The Act may be administered and enforced by the Mayor and Attorney General and by employees through a private right of action. Employers are subject to fines ranging from between US$350 and US$1,500 per violation, depending on the nature of the violation, and increased fines for multiple violations. Employees may assert that they are entitled to recover amounts under D.C.’s wage theft law, such as back pay, liquidated damages equal to triple the back pay, and attorneys’ fees, and may attempt to bring claims as a class action under the wage theft class action procedures.
When does the Act become law? As noted above, the Act becomes effective following a 30-day Congressional review period, if Congress does not disapprove it, and publication in the D.C. Register. It will apply when its fiscal impact is incorporated in an approved D.C. budget and financial plan.
Will D.C. provide additional guidance? The Act requires the Mayor to issue rules implementing the Act, including rules imposing specific recordkeeping obligations on employers.
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For more information regarding how the Act affects your workplace or other questions about non-compete agreements, please contact one of the authors of this article or the Hogan Lovells lawyer with whom you work.