DC Soon to Prohibit Almost All Non-Compete Agreements and Outside Employment Policies

On January 11, 2021, DC Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the Non-Compete Act) into law, effectively creating one of the strictest bans on non-competition agreements in the United States. The new law can be found here. The Non-Compete Act goes into effect upon the expiration of a 30-day Congressional review period (which begins upon transmission to Congress) and publication in the DC Register.

The Non-Compete Act not only bans employers from entering into post-employment non-compete agreements with employees performing work in the District of Columbia, with only a very small number of narrow exceptions, but also prohibits employers from restricting competition during employment. In other words, employers will not be able to prohibit their employees from moonlighting, working for other companies, or operating their own business during their employment. While limitations on post-employment non-competes—particularly for lower-income workers—have started to become common around the country (recent state non-compete laws include Illinois, Maryland, Massachusetts, Virginia, and Washington), DC's prohibition on non-competes during employment is unprecedented.

Key Takeaways

1) The Non-Compete Act applies to almost all employees performing work in DC, regardless of whether or not they are low-wage workers. The primary relevant exception is for highly paid "medical specialists."

• Medical Specialists are defined as physicians, holding a license to practice medicine, who have completed a medical residency, and have total compensation of at least $250,000 per year. They are specifically excluded from the law, as long as the proposed non-compete is provided at least 14 days before execution and the medical specialist is provided with a specific written notice.¹

2) Non-compete agreements and workplace policies that prohibit or restrict an employee from being simultaneously or subsequently employed by another person/entity, providing services for pay to another person/entity, or operating their own business, are broadly prohibited. This prohibition encompasses standard and reasonable "no outside employment" and "no moonlighting" policies.

• The new law does not, on its face, prohibit workplace policies that require full-time exempt employees to devote all or substantially all of their business time and attention to their current employer, or that prohibit engagement in outside work during normal working hours. However, employers will need to exercise great caution and must carefully review their handbooks and policies to ensure that they do not effectively prohibit outside employment or otherwise run afoul of the law. Further guidance or regulations from DC may be forthcoming as well.
• The new law also does not prohibit non-solicitation agreements.

3) The law does not prohibit: (i) provisions that restrict employees from disclosing confidential, proprietary or sensitive information, client lists, customer lists, or trade secrets; and (ii) non-competes entered into in connection with the sale of a business, with the seller of the business.

4) Non-compete agreements entered into after the effective date of the Non-Compete Act will be considered void and unenforceable. Non-competes entered into prior to the effective date of the law may still be enforced, subject to existing law.

5) Employers must provide a written notice to all employees stating: "No employer operating in the District of Columbia may request or require any employee working in the District of Columbia to agree to a non-compete policy or agreement, in accordance with the Ban on Non-Compete Agreements Amendment Act of 2020."

• This written notice must be provided: (i) within 90 days after the applicability date of the law (notice of the applicability date will be published in the DC Register); (ii) within 7 days of an employee's start date; and (iii) within 14 days after an employer receives a written request for such a statement from an employee.

6) The law also contains broad anti-retaliation provisions that prohibit employers from retaliating against employees for refusing to sign a non-compete, asking or complaining about a non-compete or workplace policy, failing to comply with a non-compete or workplace policy that is unlawful, or requesting information under the law.

7) Employers that violate the Non-Compete Act may be assessed a variety of administrative penalties and damages, including: (i) a penalty by the Mayor of between $350 and $1000 per violation; (ii) monetary relief to the employee of between $500 and $1000 for each violation; (iii) damages of no less than $1500 to an employee if the employer attempts to enforce a non-compete that is unenforceable or void; and (iv) additional penalties for retaliation and for subsequent violations.

• An aggrieved employee may file an administrative complaint with the Mayor or file a civil action in court. In addition to statutory penalties, a prevailing employee will be awarded his or her reasonable attorneys' fees and costs.

All DC employers should immediately begin reviewing their handbooks, policies, and non-compete agreements to ensure compliance with this new law. We will continue to monitor developments and any guidance that is issued by the Mayor's office. Please free to contact the attorneys listed in this Advisory for further guidance or analysis.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.