As we previously reported, in late 2020, the District of Columbia’s Council passed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), but more than a year later, employers and employees may still legally enter into binding covenants not to compete. So what happened, and what’s next for non-competes in the District?
What the Law Says
The law prohibits D.C. employers from requiring or requesting that an employee sign an agreement that includes a non-compete provision. The Act defines a non-compete as a provision that “prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services to pay for another person, or operating the employee’s own business.” Importantly, the Act not only prohibits employers from restricting an employee from working for a competitor after their employment, but also from restricting an employee’s competitive activities while employed by the employer. The Act does not prevent employers and employees from entering into restrictive covenants concerning confidentiality, proprietary or sensitive information, client or customer lists, trade secrets, or a non-compete involving the sale of a business.
The Act also includes a robust anti-retaliation provision, prohibiting employers from taking action against an employee for asking, informing, or complaining about the existence, applicability, or validity of a non-compete provision or a workplace policy that the employee ‘reasonably believes’ is prohibited under the law. In conjunction with the ‘simultaneous employment’ prohibition, the retaliation provision sets up a veritable minefield for employers to even ascertain whether an employee has disclosed confidential information to another employer.
Importantly, non-compete agreements executed before the Act’s effective date are likely to remain enforceable if they are otherwise lawful under common law principles.
“Applicability” is the Key Word
So why hasn’t the Act become effective law?
After the District’s Mayor signed the Act on January 11, 2021, it was codified into law on March 16, 2021 following a period of Congressional review. However, the published Act tied its date of applicability to its inclusion in the District of Columbia’s fiscal budget. On August 23, 2021, the District passed a fiscal budget, but the Mayor included a provision changing the applicability date of the Act to April 1, 2022, buying employers some breathing room during the COVID-19 pandemic. On March 1, 2022, the D.C. Council again moved to push back the date, which the Mayor signed off on March 28, 2022.
Pending any additional delays, October 1, 2022 is the date for D.C. employers to circle on their calendars.
What’s Next for the Act
Of course, the Act has caused great consternation among employers operating in the District, but it appears that the D.C. Council has been listening to some of those concerns. In addition to the welcome respite from compliance with the law, a proposed amendment allows employers to prohibit employees from disclosing or using confidential information in any outside employment, both after and during employment. While this is an encouraging sign for employers, that amendment was introduced on May 21, 2021 and the only legislative action since then has been a public hearing in July 2021. The amendment has not been considered by the full D.C. Council.
Furthermore, the amendment does not solve the real issue at the heart of the Act—the broad nature of the non-compete ban (without even a salary threshold as seen in other states), as well as the prohibition on moonlighting restrictions.
Employers should take full advantage of this reprieve and do the following by October 1, 2022:
- Decide whether to require certain employees to execute non-competes;
- Determine which positions would normally require an employee to execute non-compete agreements. Instead of requiring any applicants or prospective employees in those positions to execute a non-compete, consider other types of restrictive covenant to meet the employer’s goals (e.g., the protection of its trade secrets and other confidential or proprietary information);
- Review existing policies, offer letters, restrictive covenant agreements related to outside employment (i.e., moonlighting) and revise them to account for the Act’s requirements;
- Ensure that other workplace policies and procedures adequately protect the company from violations of non-disclosure or confidentiality obligations;
- Review existing onboarding and other notice procedures to ensure compliance with the Act’s notice requirements;
- Consult with counsel to determine a plan for future agreements and policies.