Effective October 1, 2022, Washington, District of Columbia (D.C.) employers will face substantial restrictions on the use of non-compete agreements and policies. Below is a summary of legislative action to date, as well as a review of the law’s key provisions.
In 2020, the D.C. Council passed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”). As originally passed, the Act (which has yet to take effect) prohibited employers from requiring almost all D.C. employees to sign agreements with noncompete provisions or from maintaining noncompete policies, including policies preventing current employees from working simultaneously for a competitor or otherwise competing against the employer. As such, it would have been the broadest non-competition prohibition in the country.
Following significant pushback, the D.C. Council voted on July 12, 2022 to modify the Act by passing the Non-Compete Clarification Amendment Act of 2022 (the “Amended Act”). As discussed below, the Amended Act, among other things, more clearly defines “covered employees” under the Act, allows employers to require non-competes with “highly compensated individuals,” and contains several specific provisions allowing employers to impose other limitations on employees (such as confidentiality and anti-moonlighting policies).
The Amended Act does not impact the enforceability of agreements entered into prior to October 1, 2022.
Key Provisions of D.C’s. Non-Compete Law
1. Definition of “Covered Employee” Narrowed
The Amended Act clarifies and restricts which employees are subject to the Act’s non-compete ban. A “covered employee” now includes any current employee who is not highly compensated (see below) AND who either (a) spends more than 50% of his or her work time for the employer in D.C. or (b) whose employment is based in D.C. and who regularly spends a substantial amount of work time in D.C. and not more than 50% of his or her work time for that employer in another jurisdiction. Covered employees also include new hires who have not started working for the employer and who the employer reasonably anticipates will meet one of the two conditions above, and “broadcast employees,” as defined in the Amended Act. Explicitly excluded from coverage are “casual babysitters,” “partner[s] in a partnership,” and D.C. and U.S. government employees.
2. Definition of “Non-Compete Provision”
“Non-compete provision” is defined under the Amended Act as a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business. The Amended Act thus applies to both agreements with non-compete language and to non-competition workplace policies, whether written or as a matter of practice. Beginning October 1, 2022, a non-compete provision applicable to covered employees contained in an agreement or workplace policy will be void and unenforceable.
3. “Highly Compensated Employee” Exclusion
Under the Amended Act, D.C. employers may require highly compensated employees to sign non-compete agreements or comply with non-compete workplace policies. Highly compensated employees include those: (a) who are reasonably expected to earn from the employer $150,000 or more during a consecutive 12-month period, or (b) whose compensation earned from the employer in the consecutive 12-month period preceding the date on which the proposed term of non-competition is to begin is greater than or equal to $150,000. A “medical specialist” who is a highly compensated employee can also be subject to a non-compete provision and is defined under the Amended Act as a licensed physician primarily engaged in delivering medical services with an earnings threshold above $250,000. The minimum compensation figures for highly compensated employees, including medical specialists, will be adjusted annually based on the Consumer Price Index beginning January 1, 2024.
4. Scope of Non-Compete Agreements for Highly Compensated Employees
To be valid and enforceable, the Amended Act requires all non-compete agreements signed by highly compensated employees on or after October 1, 2022 to meet certain criteria. Specifically, the agreement must include the “functional scope of the competitive restriction” (i.e., the specific services, roles, industry, or competing entities to which the restriction is applicable), the geographical limitations of the restriction, and an applicable time limit of no more than one year for non-medical specialists and two years for medical specialists from the date of separation of employment.
The Amended Act explicitly excludes from its non-compete ban certain restrictions that employers often impose on employees, as long as they are otherwise lawful, including the following instances:
(a) Confidentiality provisions. Employers can still require employees to sign confidentiality agreements and abide by confidentiality policies which restrict them from “[d]isclosing, using, selling, or accessing the employer’s confidential employer information or proprietary employer information.” The Amended Act contains specific language defining “confidential” and “proprietary” employer information that employers may want to incorporate into their agreements and policies.
(b) Anti-moonlighting policies. Employers can require employees to comply with provisions which restrict them from working for another employer during the employees’ employment if the employer reasonably believes such activity could result in disclosure of confidentiality or proprietary information or pose a conflict of interest (i.e., anti-moonlighting policies).
(c) Long-term incentive plans. Employers can include non-compete provisions in long-term incentive plans, such as bonus plans, equity compensation and stock options earned over more than a year.
(d) Sale of business. The Amended Act also includes a carve-out for seller of a business, who can agree not to compete with the buyer’s business.
Interestingly, the Amended Act does not address the legality of non-solicitation provisions, which allow employers to restrict employees from conducting business with an employer’s customers or clients and from hiring co-workers away from the employer. Therefore, non-solicitation provisions are presumably still lawful in D.C.
6. Notice Requirements
The Amended Act imposes several notice requirements on employers who plan to use non-compete agreements for their highly compensated employees. Beginning October 1, 2022, employers must provide a copy of the non-compete agreement to the employee, in writing, at least fourteen days before the individual commences employment; or, for existing highly compensated employees, at least fourteen days before the employee is required to sign the agreement.
Further, employers must also provide the following specific notice language whenever a non-competition agreement is proposed to a highly compensated employee:
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).
Finally, if an employer has a workplace policy or policies that include one or more of the approved carve-outs (including, i.e., confidentiality and anti-moonlighting policies), the employer must provide a copy of such policy provisions to employees by October 31, 2022, and any time thereafter if the policy changes. New hires must receive a written copy of the policy within 30 days after the individual’s acceptance of employment with the employer.
7. Anti-Retaliation Protections
The Amended Act prohibits employers from retaliating against or threatening to retaliate against covered employees, including prospective employees, for: (a) refusing to agree to a non-compete provision or agreement that is prohibited under the Amended Act; (b) failing to comply with a prohibited non-compete provision or agreement; (c) asking, informing, or complaining about a workplace policy or agreement that the employee reasonably believes is prohibited by the Amended Act or requesting a copy of such a provision; or (d) asking for a copy of the non-compete or information required to be provided to a highly compensated employee.
8. Penalties and Enforcement
The D.C. Mayor and Attorney General can enforce the Amended Act and may assess administrative penalties for each violation ranging from $250-$1,500. Penalties relating to violations of the anti-retaliation provisions shall be at least $1,000 and no more than $2,500 for each occurrence. In addition to administrative penalties, an employer who violates specific provisions of the Amended Act may face additional penalties up to $3,000 per violation, depending on the section of the Amended Act violated. Notably, the Amended Act includes penalties against any employer that attempts to enforce a non-compete provision that is unenforceable or void under the Amended Act. An aggrieved person can pursue relief by filing an administrative complaint or a civil action. Rules implementing the Amended Act will be forthcoming.
Next Steps for Employers
Employers of D.C.-based employees may wish to begin preparing for compliance prior to the Amended Act’s October 1st effective date. Some possible steps could include the following:
1. Determine your universe of “covered employees” based on the Amended Act's definitions.
2. Determine your universe of "highly compensated employees" and whether you want/need non-compete agreements with them.
3. Review all current non-compete agreements and written policies and revise as necessary to ensure compliance with the new law.
4. Update internal processes to ensure that new employees are not asked to sign agreements with non-compete provisions after October 1, 2022, unless they meet one of the exceptions under the Amended Act.
5. Update internal processes to ensure compliance with the fourteen-day notice requirement which is applicable to non-compete agreements with highly compensated employees.
6. Prepare the statutory notice which must accompany non-compete agreements given to highly compensated employees using the specific language required by the Amended Act.
7. Distribute copies of updated workplace confidentiality and anti-moonlighting policies to all D.C.-based employees on or before October 31, 2022, and anytime thereafter if these policies are revised.
8. Update onboarding procedures to ensure that new employees receive confidentiality and anti-moonlighting policies either at the time of hire or within thirty days of accepting employment.
If you have questions about D.C.’s new non-compete requirements, please contact Margaret Scheele at email@example.com or 703-408-4718.
Margaret Scheele (Washington D.C. team) is an employment law attorney with almost 30 years of experience. Margaret has represented a range of clients in a variety of industries, including aviation, food service, telecommunications, health care, and government contracting. Her practice includes the full range of advice and counseling work that arises within the employment context, including most recently COVID-related matters.