Washington, D.C. Joins Growing Trend to Ban Non-Competes

March 30, 2021Alerts

Effective March 16, 2021, employers in the District of Columbia may no longer use non-compete agreements to safeguard company information. The latest in a growing number of employer restrictions, the Ban on Non-Compete Agreements Amendment Act (the Act) prohibits such agreements for virtually all D.C. employees.

Non-compete agreements and policies put in place after the Act takes effect will automatically be considered void and may subject employers to monetary penalties, including penalties for each individual violation and increased monetary penalties for repeat violations.

In addition to strict penalties, the Act stands out among other recent state non-compete restrictions because of its breadth. It contains no salary threshold, bars employers from restricting employees’ outside employment both during and after employment, includes strict retaliation provisions, and implements notice and recordkeeping requirements.

As always with new laws, details remain to be litigated. As written, the Act is a complete ban on non-competes except for the limited circumstance of the sale of a business (similar to California’s expansive prohibition on non-competes).

Without the use of non-competes, companies can still effectively protect their businesses by taking proactive measures to comply with the Act and focusing on other aspects of their information protection plan.

Broad Prohibition

While both Maryland and Virginia have recently passed laws limiting the use non-compete agreements, those laws apply only to employees who earn below a set amount. In Maryland, employees who earn less than $31,200 per year or $15 per hour are protected and, in Virginia, employees who earn less than the average weekly wage in the state are protected.

The Act, on the other hand, excludes only: (1) volunteers, (2) elected or appointed religious officials, (3) casual babysitters, and (4) certain medical specialists.

As written, the Act applies to all employees who “perform work in the District” and any prospective employees who an employer anticipates will work in the District. While further clarification may be forthcoming, this broad definition may be read to include remote workers and workers who spend only a fraction of their time in the District.

The Act also specifically prohibits employers from enforcing anti-moonlighting provisions or policies for current employees. This includes employees with any side jobs – whether they have their own business or work for a direct competitor.

Retaliation

In addition, the Act prohibits employers from retaliating against, or threatening to retaliate against, any employee who refuses to comply with a non-compete agreement or policy. The Act further provides for higher monetary penalties for violations of the non-retaliation portions of the Act.

Notice and Recordkeeping

All employers must provide employees written notice of the Act within: (a) 90 days of the effective date of the Act, (b) 7 days after hire for new employees, and (c) 14 days after an employee requests the information in writing.

Companies must give specific notice to all employees of the Act. This includes employees who were not previously, or would not otherwise have been, subject to a non-compete.

The Act also includes a recordkeeping requirement for employers but does not currently specify the type or form of records companies are required to maintain.

What Employers Need to Do

Companies with employees in D.C. should respond proactively.

First, to avoid the statutory penalties imposed for each violation of the Act, employers should immediately assess any agreements for incoming employees and employees whose agreements are up for renewal. While the Act does not apply to existing non-compete agreements, it does apply to any non-compete agreements entered into after the effective date of the Act.

Second, employers should review existing policies for any restrictions on moonlighting. These policies, now void under the Act, must be deleted or carved out for any D.C. employees.

Third, employers should provide the required notice to all existing employees who work in D.C. or who may work in D.C. at some point. Employers should also consider adding the notice to their D.C. handbooks as well. Unless and until further clarification is provided on the recordkeeping requirement of the Act, employers should document employees’ receipt of the notice and retain it until notified otherwise.

Fourth, companies should review their overall trade secret protection program. The Act specifically excludes confidentiality and non-disclosure agreements. So, now is the time for companies to revisit existing non-disclosure policies to ensure they effectively safeguard company information despite the absence of non-competes. Employers should also take steps to ensure that their critical information can qualify as a trade secret in the event employers must rely on information-based restrictions without use of non-competes.

Finally, employers may also implement or update non-solicitation policies to prevent employees from soliciting clients or other employees. However, this should be done with caution as non-solicitation agreements are not specifically excluded from the Act – signaling a potential future restriction either through legislation or D.C. courts.