D.C. Noncompete Ban, Years in the Making: On January 25, 2021, FordHarrison published a Legal Alert indicating that Washington, D.C. would soon implement a ban on noncompete agreements. As noted, the Ban on Non-Compete Agreements Amendment Act of 2020 was considered one of the most far-reaching prohibitions on noncompete agreements in the country. However, feedback from the business community prompted the D.C. Council to revisit the Act, delaying its implementation. Finally, the D.C. Non-Compete Clarification Amendment Act of 2022 (the “Amendment”) went into effect on October 1, 2022. This newly amended version, while less far-reaching, is still a significant ban on the use of noncompete agreements and includes important changes that every D.C. employer should know.
Beginning October 1, 2022, D.C. employers cannot require or request that “covered employees” sign an agreement or comply with a workplace policy that includes noncompete language or provisions. While the previous version of the law would have created a near total ban on the use of noncompete agreements, under the Amendment, this restriction applies to individuals: (1) earning less than $150,000 in annual total compensation; and (2) who generally spend at least half of their work time in the District, or spend a substantial amount of time working in the District for a D.C.-based employer and who do not conduct more than half of their work in another jurisdiction.
Excluded from the definition of “covered employees” are “highly compensated employees.” Under the Amendment, “highly compensated employees” are those who are expected to earn at least $150,000 in a twelve-month period (adjusted annually for inflation).
As discussed in our previous Alert, the former version of the Act would have also effectively prohibited D.C. employers from enforcing their anti-moonlighting policies. Likely to be considered a win by the business community, the Amendment relaxes this total ban, permitting D.C. employers to impose restrictions on outside employment activities that could:
- Result in disclosure of the employer’s confidential or propriety information;
- Create a conflict with the employer, industry or professional rules regarding conflicts of interest;
- Conflict with a commitment to a higher education institution; or
- Impair the employer’s ability to comply with D.C. or federal laws or regulations, a contract, or a grant agreement.
The Amendment does not require employers to modify noncompete agreements executed on or before September 30, 2022.
Notice Requirements: The Amendment outlines procedural notice requirements for D.C. employers. When proposing noncompetition agreements to “highly compensated employees,” employers must provide a written copy of the agreement, along with the following statutory notice:
The District’s Ban on Non-Compete Agreements Amendment Act of 2020 limits the use of non-compete agreements. It allows employers to request non-compete agreements from highly compensated employees, as that term is defined in the Ban on Non-Compete Agreements Amendment Act of 2020, under certain conditions. [Name of employer] has determined that you are a highly compensated employee. For more information about the Ban on Non-Compete Agreements Amendment Act of 2020, contact the District of Columbia Department of Employment Services (DOES).
The above notice must be provided at least 14 days before a new employee’s start date, or at least 14 days before an existing employee’s deadline to execute the noncompete agreement.
Employers who utilize what the law calls “exceptions to the definition of non-compete provisions” (defined as nondisclosure, confidentiality, and proprietary information agreements, anti-moonlighting and conflicts of interest agreements, and long-term incentive agreements) are required to provide written copies of the noncompete agreement to an employee: (1) within 30 days after the employee’s acceptance of employment; (2) within 30 days after October 1, 2022; and (3) any time any such policy changes.
Employer Considerations: Employers should train their human resources departments and managers on this new law as soon as possible. If you are a D.C. employer who utilizes noncompete agreements, you will need to adhere to the notice requirements and ensure you are no longer requiring covered employees to sign them. For employers outside of D.C., know that the national trend of banning certain noncompete agreements could be coming to your jurisdiction in the near future.
If you have any questions related to D.C.’s newly effective noncompete ban, or any other employment-related issues, please contact the authors of this Alert, James D. Handley, a senior associate in our Washington, D.C. office, at jhandley@fordharrison.com, or Danielle E. Pierre, a senior associate in our Washington, D.C. office, at dpierre@fordharrison.com. Of course, you can also contact the FordHarrison attorney with whom you usually work.