I. Overview of the Ban On Non-Compete Agreements Act of 2020
District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (D.C. Act 23-563) (the “Act”) on January 11, 2021.
If the Act goes into effect, it will generally:
- Keep employers from placing restrictions on who former employees can work for, where they can work, or requiring them not to work for a certain time period.
- Keep employers from banning employees from working at other jobs simultaneously (“moonlighting”).
As with all DC legislation, the Act is subject to the Home Rule Act and will be approved after 30 days unless Congress passes a joint resolution, signed by the President, disapproving the Act. As DC is a federal district rather than a state, the Home Rule Act gives Congress the right to review all legislation passed by the DC City Council before it can become law and to retain authority over DC’s budget.
If approved, the Act would go into effect upon DC approving its next budget and financial plan, which is expected to take place in 2022.
Employers who currently have or planned to require non-competes with current or former employees should seek counsel if they have questions and prepare to use alternative strategies to protect their business interests. As the Act is not retroactive, employers who are in the position to do so should attempt to secure necessary non-competes with employees who are to be terminated prior to the Act going into effect.
Hospital administrators and operators of medical practices overseeing the employment or retention of medical specialists can still enforce noncompetition agreements against those specialists in many cases, and should obtain counsel to ensure compliance with the Act.
The Act represents a large shift in the enforceability of non-competes in DC. Employers may need to lean more heavily on confidentiality and non-solicitation agreements, as well as enforcing breaches of employee’s duty of loyalty, in order to protect the employer’s business interests. If you currently use non-competition agreements in your workplace in DC or elsewhere, General Counsel, P.C. strongly encourages you to contact us so that we may review your current agreements, determine if they are enforceable, and help you come up with alternative strategies to protect your business interests.
II. What Does the Act Require and/or Prohibit?
The Act prohibits “an individual who performs work in the District on behalf of an employer” from entering into non-compete agreements and makes invalid any non-compete entered into after the Act goes into effect. It also prohibits employers from having any company-wide policy or individual policy which prevents employees from moonlighting with another employer or operating their own businesses.
It also prohibits retaliation by employers against employees who (i) refuse to sign non-competes; (ii) do not comply with existing non-competes; (iii) ask questions about their rights; or (iv) tell any employee, coworker, lawyer or governmental entity about an employer’s violations of the Act.
The Act requires employers to notify their employees about their protections under the Act by providing them with a copy of the following text within ninety (90) days of the Act going into effect and within seven (7) calendar days after being hired (or within fourteen (14) days of an employer receiving a request for such statement from the employee):
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 Amendment Act of 2020.
The Act permits the Mayor or the Attorney General to enforce the Act with fines for noncompliance, ranging from $350-$1000 per incident (and $1,000-$2,500 in the case of first-time retaliatory conduct by employers). The amount of the fines increases upon repeated violations.
III. Who Would the Act Affect?
The Act applies to all private employers operating in the District of Columbia; it does not apply to the US government or the DC government.
Notably, it is not retroactive and so will have no effect on non-competes executed prior to the date the Act takes effect. For clarity, this does not mean that an employer can set up a company-wide policy prior to the effective date of the Act and still have it be enforceable; the exception would apply only to former employees who otherwise execute valid non-competes. It also is unclear whether it affects employees who only intermittently work within the District if the employer is not located there.
The Act is designed to be comprehensive and so has few exceptions. The following employees are not subject to the Act (and may therefore be subject to a non-compete):
- Volunteers in the activities of an educational, charitable, religious, or nonprofit organization
- Lay members elected or appointed to office within religious organizations and engaged in religious functions
- Casual babysitters providing services in-residence
- Medical specialists
It is likely that a narrow subset of non-compete agreements will continue to be enforceable, where: (1) the non-compete was signed prior to the Act going into effect; and (2) the person is a former, not current, employee.
IV. Rules for Medical Specialists
Licensed physicians who have completed their residency and have a total compensation of at least $250,000/year are exempted from the Act and can still be subject to non-competition agreements. However, the Act requires that certain additional notices be provided to medical specialists:
- The 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;
- The employer must include the following written notice at the same time the employer provides the proposed non-compete provision to the medical specialist:
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.
V. What Alternatives May Still Be Available for Employers?
Employers should be aware of what other options are available to protect their interests. The Act likely does not prohibit the following:
- Confidentiality and non-disclosure agreements to protect proprietary or sensitive business information, including client lists and contact information;
- Obligations to maintain their fiduciary duty (if applicable) and duty of loyalty; and
- Common law (non-statutory) remedies to prevent misuse of confidential business information and trade secrets.
The Act does not explicitly mention non-solicitation agreements, so it is unresolved whether such agreements may still be enforceable.
VI. What Rights Do Employees Have If Subjected to Prohibited Action?
Employees should file an administrative complaint with the Mayor and/or Attorney General stating clearly, and in detail, what happened to them. The Act allows for employees and former employees to bring civil claims (i.e. it grants a “private right of action”) against employers accused of violations, even if the Mayor or Attorney General chooses not to pursue a claim on behalf of DC.
VII. What Rights Do Employers Have If Accused of a Violation?
The Act specifies that no fees may be assessed by the Mayor until the alleged violator of the Act is notified of their violation, the amount to be assessed, and given an opportunity to request a formal hearing. Employers accused of violations should seek counsel to represent them in any formal hearing.
VIII. Key Takeaways
The Act imposes a broad ban on most types of noncompetition agreements in an employment and post-employment context. Upon the Act going into effect and hiring new employees, employers need to make sure they provide employees with a copy of the block of text noted in Section 2, above. They also need to make sure they don’t attempt to enforce non-compete agreements except where (1) the agreement was signed before the Act went into effect and (2) the person is a former employee. Employers should not retaliate against employees that ask about their rights or attempt to report violations to protected third parties.
Non-competes are still allowed with regard to certain highly compensated medical professionals, but employers must ensure that they are following all notice requirements to ensure their enforceability.
If you are an employer in DC or neighboring states (including Virginia), be aware that laws on restrictive covenants such as non-compete and non-solicitation agreements have been shifting recently. General Counsel, P.C. is available to review your existing agreements or help you develop new policies to protect your business interests. Contact us for further information.