Washington D.C. Amends its Ban on Non-Compete Agreements

What is a Non-Compete Agreement or Provision?

A Non-Compete provision may prohibit current and former employees from simultaneously or subsequently being employed by another entity or operating their own business within a certain geographic radius for a defined period of time (i.e. 2 years) if the employee will provide similar services in a competing field of work. This provision is typically presented to employees upon an employment offer as a part of an employment agreement.

A Non-Compete Agreement is a standalone agreement between an employer and employee that has one or more Non-Compete provisions or restrictive covenants. An agreement can also be entered into after employment has begun but should be provided at least 14 days prior to taking affect. Employers require employees to sign a Non-Compete to limit competition, conflicts, and improve quality of work.

Original Ban on Non-Compete Agreements

On January 11, 2021, the District of Columbia signed D.C. Act 23-563, which banned Non-Compete provisions in employment contracts protecting employees from being required to sign a non-complete agreement as a condition of their employment. This act prohibits employers from presenting Non-Compete agreements and opens the door for employees to “moonlight”, seek additional employment, or pursue other professional endeavors since they would no longer be restricted to a single employer.

The Purpose of the Clarification Amendments

D.C.’s ban was one of the broadest bans on Non-Compete provisions. Employees were free to simultaneously work two jobs with no wage threshold. Only medical professionals were prohibited from simultaneously working for two employers. The original Act was immediately subject to criticism and has had various delays to its applicability date due to its controversy and vague (if any) limitations in most areas.

What Are the Clarifying Amendments?

One of the most notable changes in the provisions specifies which employees are subject to the Non-Compete ban.  The original Act broadly stated that “individuals performing work in the District for an employer” were protected from Non-Competes. However, the clarifying amendments set salary thresholds. The amendments stated that highly compensated employees are exempt from the protection of the Ban. According to the amendment, ‘highly compensated employees’ are “employees who are reasonably expected to earn from the employer in a consecutive 12-month period compensation greater than or equal to the minimum qualifying annual compensation.” The minimum qualifying annual compensation is $150,000, or $250,000 if the employee is a medical specialist. A medical specialist is considered someone who holds a license to practice medicine and has completed residency. The annual compensation is suggested as the amount equal to the previous calendar year’s annual compensation increased by the annual average for inflation coverage.

The amendment to the Act also clarifies that employees are prohibited from using confidential employer information elsewhere. Employees are prohibited from ‘“[d]isclosing, using, selling, or accessing the employer’s confidential employer information or proprietary employer information” to the benefit of third-parties. There was a similar carve out in the original Act and other protections that prohibited employees from using any confidential information but the amendment clarifies and reinforces the definition. Employers can impose a Non-Compete if they reasonably believe that moonlighting will result in disclosure of confidential information, will cause a conflict of interest, or a conflict of commitment to the work at hand. This provision is controversial because it allows employers to prohibit their employees from seeking additional employment if the employer determines that there is a conflict of interest.

Limitations for Employers

Non-Compete Agreements are only enforceable if they contain certain limitations. The amendment clarifies qualifications for an employer/employee relationship covered under the Act. It states that a D.C. employee is someone who is working at least 50% of the time for their employer in the District. Applicable Non-Compete Agreements are not valid for more than 365 days, there must be a 30-day notice and a written agreement at least 14 days prior to commencement. The agreement must also include the scope of employment and geographical limitations.

Overall while a bit controversial, the Act harmonizes the coverage for employers as well as protections for employees of D.C. It is consistent with other D.C. laws. The clarification was finalized on July 12, 2022 but became effective on October 1, 2022.

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