District of Columbia’s Reduced Non-Competition Ban Takes Effect October 1, 2022 // Cooley // Global Law Firm
On July 27, 2022, District of Columbia Mayor Muriel Bowser signed into law long-debated amendments to the Non-Competition Agreements Amendment Act of 2020. Non-Competition Clarification Amendment Act 2022 reduced many of the general restrictions on non-competition agreements in the original bill, the effective date of which was delayed due to opposition from the business community. The amended law will enter into force on October 1, 2022barring any unlikely action by Congress during the mandatory review period.
As we explained in our February 2021 and April 2022 Customer Alerts, DC’s original non-compete bill would have been one of the broadest legal prohibitions on non-compete agreements in states. -United. As originally signed, it would have prohibited the use and enforcement of non-compete agreements for virtually all employees working in DC. The original bill also prohibited anti-moonlighting policies, including policies prohibiting employees from operating their own businesses while working for an employer, and prohibiting competitive activities outside of employment. The new amendment reduces several of those restrictions, including limiting non-compete agreements to “highly paid employees,” clarifying protections for employers’ confidential and proprietary information, and allowing some anti-money labor restrictions.
Main provisions of the amendment
New definition of “non-competition clause”
The amendment now defines a “non-competition provision” as “a provision of a written agreement or workplace policy that prohibits an employee from performing work for another…or exploiting his own company”. The amendment clarifies that it not limit an employer’s ability to, among other things:
- Restrict or prohibit employees from[d]isclose, use, sell or access Confidential Employer Information or Employer Proprietary Information. »
- Restricting or prohibiting employees from concurrently working for another entity because the employer believes that doing so could result in the disclosure of confidential or proprietary information or create a conflict of interest.
It also allows for the inclusion of otherwise legal non-competition clauses in long-term incentive plans, which include bonuses, stock compensation and stock options that typically vest over more than one year.
In light of this revised definition, employers will be permitted to maintain workplace policies and anti-black work restrictions that prohibit concurrent outside employment or business activity as long as these restrictions do not cover only activities that conflict with the established rules of the employer, industry or profession regarding conflicts. of interest, or result in the disclosure of confidential or proprietary information. Notably, the amendment is silent on whether DC employers can continue to restrict post-termination solicitation of their clients, consultants, employees, or contractors, and thus appears to continue to permit such restrictions.
Non-competition compensation threshold
Consistent with other jurisdictions, such as Colorado and Washington State, DC will now only allow non-compete agreements for “highly paid employees” who earn at least $150,000 per year, with some exceptions. Compensation is broadly defined to include hourly wages, salaries, cash bonuses or incentives, commissions, overtime bonuses, vested shares and other payments “provided on a regular or irregular basis”. The $150,000 threshold will increase starting in 2024 in accordance with the Ministry of Labour’s Consumer Price Index.
Non-competition prohibition still applies to covered non-high-paid employees
Subject to limited exceptions, the amendment still prohibits non-compete agreements for all other non-highly paid employees who spend (or are expected to spend) more than half of their work time in DC or – if their employment is based in DC – regularly spend a “substantial amount” of work time in DC and no more than half of their time in any other jurisdiction.
Notices and other requirements
The amendment also imposes several other requirements on employers who intend to present non-compete agreements to highly paid employees. As of October 1, employers must:
- Specify in the non-compete agreement the departments, roles, industry or competing entities for which the employee is not authorized to perform work.
- Specify in the non-competition agreement the geographical limits of the restriction.
- Limit the non-compete agreement to a term of one year from the date of separation, with limited exceptions.
- Provide the non-compete agreement to the employee in writing at least 14 days before the start of employment or the date the employee must sign the agreement.
- Provide a notice containing specific language that references the original invoice and refers the worker to the DC Department of Employment Services for further information.
Employers must comply with an additional disclosure requirement if any workplace policies includes a provision that could be construed as a “non-competition provision”, such as a prohibition on moonlighting where doing so would, for example, result in the employee disclosing or using the company’s confidential or proprietary information. employer or would constitute a conflict of interest. Employers must provide a written copy of the provision to all the employees affected by this policy within 30 days of each employee’s acceptance of employment, within 30 days of October 1, 2022, and every time the policy changes.
The amendment recalls that employees who inquire, object or even request a copy of their non-compete agreement are protected against retaliation.
Penalties and enforcement
The DC Mayor and Attorney General are authorized to enforce the amended ban. Employers in violation can face administrative penalties of $350 to $1,000 for each violation and, for violations of the anti-retaliation provisions, fines of at least $1,000. Penalties increase with each subsequent violation. An aggrieved employee can also seek redress by filing a complaint with the mayor or by filing a civil action.
Next steps for employers
Prior to the October 1 effective date, employers whose employees work in DC should review their non-competition agreements and employment policies and prepare to comply with the requirements of the amendment, which will will apply to non-competition agreements entered into on or after October 1. 2022. Employers should ensure that employees meet the applicable compensation threshold and analyze whether a particular non-highly compensated employee falls within the amendment definition of a covered employee. Employers with moonlighting or outside activities policies should also prepare to comply with the notification requirements of the amendment. In addition, employers should train relevant managers and human resources personnel regarding the general anti-retaliation provisions of the amendment.
If you have any questions about the amended ban or about DC’s treatment of restrictive covenants more generally, please contact a member of Cooley’s employment group.