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District of Columbia to Ban Non-Competition Agreements

By W. Whitaker Rayner on January 27, 2021
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Closeup of male hand signing legal or insurance document on black desk with reflection.On January 11, 2021, the mayor of the District of Columbia signed an Act prohibiting non-competition provisions in employment agreements entered into after the date of passage.  While under the peculiar rules of the District of Columbia, Congress has a 30-day window to disapprove the Act, it appears likely that this Act will pass.  The effect of passage is significant, in that this widely-used tool to protect ongoing businesses will be taken away.

According to D.C. Act 23-563, with limited exception, any business operating in the District of Columbia will be prohibited from requiring its employees performing work in the District to sign non-competition provisions, or from being punished for refusing to sign such agreements.  Furthermore, employers must notify employees that such a prohibition exists for the District of Columbia.

The impact of the Act is damaging to any DC area business with trade secrets or which relies on the expertise and experience of employees.  To see why, one must first look at the purpose behind non-compete agreements.  First, such agreements protect the goodwill associated with the skill and reputation among employees in the respective industry.  Good employees know business operations and are frequently the liaison between the customer and the business itself.  Next, employees typically have numerous trade secrets of the business at their disposal, including, but not limited to, business methods, customer lists, operational contacts, manufacturing contacts, etc.  The Act pays lip service to the trade secrets by providing that:

A non-compete provision does not include … an otherwise lawful provision that restricts the employee from disclosing the employer’s confidential, proprietary or sensitive information, client lists, customer lists, or a trade secret as that term is defined in § 2(4) of the Uniform Trade Secrets Act of 1988.

Nonetheless, while physical objects such as customer lists, recipes, formulas, and other items may be identified and restricted from making their way to a new employer, the general operational know-how that an employee has gained through his or her employment is difficult to restrain.  Allowing an employee to immediately depart to a competitor, or allowing the employee to immediately resign and go into competition with his or her former employer, gives a great advantage to the departing employee at the expense of the employer.

For businesses operating in the District of Columbia, what can be done to protect the business?  To some, the restrictions of the Act and the type of business of the employer may be significant enough for the employer to relocate operations from the District.  For all others, the Act is a warning to tighten up all data that may constitute trade secrets, including the proper labeling of trade secrets, the shoring up of trade secret protection policies in employee manuals, and otherwise seeking to retain rights in confidential, proprietary information of the business, including where appropriate, employee acknowledgment of the confidential and proprietary nature of the various confidential information.

Is the Act an aberration or flash in the pan peculiar to the District of Columbia, or is it the start of a growing trend shifting employment rights away from employers and toward employees?  Only time will tell.  However, businesses across the United States, should monitor any proposed future legislation regarding the enforceability of non-compete agreements, particularly in those states in which one’s business or businesses operate.

Photo of W. Whitaker Rayner W. Whitaker Rayner

Whit Rayner is an author for the Trade Secret Insider and is a partner in the firm’s Jackson office. His practice focuses on copyright and trademark registration and protection, software licensing, and intellectual property litigation and prosecution, including cases involving trade secret theft…

Whit Rayner is an author for the Trade Secret Insider and is a partner in the firm’s Jackson office. His practice focuses on copyright and trademark registration and protection, software licensing, and intellectual property litigation and prosecution, including cases involving trade secret theft and protections. He also represents financial institutions in commercial litigation and contract disputes. Whit frequently speaks on trade secret and intellectual property issues, authored the Intellectual Property Section of West Publishing’s Encyclopedia of Mississippi Law, and is the Mississippi editor of State Trademark and Unfair Competition Law; and Practical Law’s Mississippi chapters of Trademark Law and Right of Publicity Law. He can be reached at wrayner@joneswalker.com or 601.949.4724.

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  • Posted in:
    Employment & Labor
  • Blog:
    Trade Secret Insider
  • Organization:
    Jones Walker LLP
  • Article: View Original Source

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