DC to Impose Sweeping Ban on Non-Competes and Anti-Moonlighting Policies

The Act is part of a growing trend of statutory restrictions on non-compete agreements. In 2020, Virginia enacted a ban on non-compete agreements with “low-wage employees,” as noted in this Client Alert, while Washington State began enforcement of a prohibition on non-compete agreements with employees earning $100,000 or less per year and with independent contractors earning $250,000 or less per year. In 2019, Maine, Maryland, New Hampshire and Rhode Island all enacted legislation prohibiting non-compete agreements with employees earning less than a specified level of compensation.

Who’s Covered

The Act defines “employer” as “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District, or any person or group of persons acting directly or indirectly in the interest of an employer operating in the District in relation to an employee, including a prospective employer." The Act contains no employer size minimum or maximum to trigger coverage.

The Act’s protections apply to almost all compensated employees who perform work in the District or applicants for such positions (with exceptions for highly compensated medical specialist, certain lay employees of religious organizations who engage in religious functions, and casual babysitters who work in their employer’s home). While numerous states have passed legislation prohibiting the use of non-competes for low wage employees, the Act applies to employees of all income levels, with the exception of post-residency physicians who earn at least $250,000 annually.

What’s Covered

The Act prohibits employers from requiring or requesting that an employee sign an agreement that includes a non-compete provision. The Act defines a “non-compete provision” broadly, as any “written agreement between an employer and an employee that prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business” (emphasis added). The Act also bans employers from maintaining any workplace policy that prohibits an employee from:

• Being employed by another person;
• Performing work or providing services for pay for another person;
• Operating the employee’s own business.

The Act prohibits an employer from retaliating or threatening to retaliate against an employee who refuses to agree to or fails to comply with an unlawful non-compete provision or workplace policy preventing simultaneous employment.

The Act does not prohibit a covered employer from enforcing an “otherwise lawful provision that restricts the employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or trade secret.” Nor does the Act prevent an employer from requiring disclosure of a current employee’s outside employment, compensated work or any other business with which the employee is associated.

Notably, the Act does not have a retroactive effect, meaning non-compete agreements entered into before the Act’s effective date will remain valid and enforceable. However, workplace policies should be updated to comply with the Act.

Notice Requirement

The Act contains a notice provision requiring covered employers to provide the following written notice to their employees:

“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.”

The notice must be provided to all DC employees within 90 days of the Act’s effective date, to newly hired employees within seven calendar days after hire, and to any employee making a written request for notice within 14 calendar days after receiving a such request. The Act does not contain a separate posting requirement.

Penalties

The Act authorizes the Mayor and Attorney General for the District of Columbia to administer and enforce the Act, including by assessing an administrative penalty of no less than $350 and no more than $1,000 for each violation. In addition, a person aggrieved by a violation may either file an administrative complaint with the Mayor or a civil action in a court of competent jurisdiction. Monetary remedies authorized under the Act range from $500 to more than $3,000 to each affected employee, depending on the nature of the violation, and whether it is a first or subsequent violation.

Employer Obligations

Moving forward, employers operating or having employees in DC will need to review their employment agreements to ensure that new or amended agreements contain no restrictions on competition or categorical prohibitions on outside employment. Employers that previously expected employees to sign non-competition provisions would be prudent to substitute or rely on existing provisions prohibiting non-solicitation of customers and robust protections for the employer’s confidential information. Employers will also need to modify workplace policies by removing any general language that could be construed as preventing an employee from obtaining outside employment both during and subsequent to the employee’s current place of employment. In place of policies excluding outside employment, employers should consider drafting policies requiring disclosure of any outside employment and implementing or strengthening conflict of interest policies. Employers should also reinforce, through policy, that employees may not work on outside work during normal work hours and may not use employer resources or equipment for any outside employment.