Modified DC Non-Compete and Anti-Moonlighting Law to Take Effect October 1, 2022

• permits and provides guidelines for employers entering into non-compete agreements with highly compensated employees;
• allows anti-moonlighting policies that prohibit conduct posing a conflict of interest;
• permits restrictions on competition that protect against use or disclosure of confidential or proprietary information;
• allows restrictions on competition if supported by long-term incentive compensation;
• caps the permitted duration of any non-competition restriction;
• protects against retaliation for certain inquiries or actions;
• establishes notice requirements; and
• provides for penalties and damages for violations.

Absent congressional action during the mandatory review period, the Act will take effect on October 1, 2022. Non-compete provisions in new agreements entered into on or after the applicability date will be void and unenforceable if the provisions violate the Act. As of the applicability date, employers are also prohibited from “requir[ing] or request[ing] that a covered employee sign an agreement or comply with a workplace policy that includes a non-compete provision.” It will be considered unlawful to retaliate against an employee for refusing to comply with a void provision after October 1, 2022.

Scope of the Act
The Act significantly narrows the scope of the initial legislation. While the original ban applied to agreements with any employee or prospective employee who works or is expected to work in DC, the new Act covers employees and prospective employees only if: (i) they spend or are reasonably anticipated to spend more than 50% of their work time in DC, or (ii) their employment is or will be based in DC, and the employer reasonably anticipates that the employee will regularly spend a substantial amount of the employee’s work time in DC and not more than 50% of the employee’s work time in another jurisdiction. The Act does not, however, supersede the terms of any valid collective bargaining agreement.

Non-Competes Permissible for “Highly Compensated Employees”
The Act permits DC employers to enter into non-compete agreements with highly compensated employees, subject to guardrails as to the reasonableness of those restrictions and specific notice requirements. Highly compensated employees are defined as those who, as of October 1, 2022, earn or are expected to earn total compensation of at least $150,000 per year, except that, for licensed physicians who have completed a residency, the highly compensated threshold will be $250,000 annually. Under the Act, “compensation” includes: (i) hourly wages; (ii) salary; (iii) bonuses or cash incentives; (iv) commissions; (v) overtime premiums; (vi) vested stock including restricted stock units; and (vii) other payments provided on a regular or irregular basis. Fringe benefits, however, only count toward the threshold if they are paid to the employee in cash or cash equivalents.

Beginning January 1, 2024, the monetary threshold for “highly compensated” employees will increase in proportion to the annual average increase in the U.S. Department of Labor’s Consumer Price Index for All Urban Consumers in the Washington Metropolitan Statistical Area for the previous calendar year adjusted to the nearest whole dollar.

Outright Ban of Most Non-Competes for Other Employees
For employees who earn below the “highly compensated” threshold, employers are prohibited from entering into any agreement that contains what the Act defines as a “non-compete agreement.” The term “non-compete agreement” is defined as any contract between an employer and employee containing a “non-compete provision,” which in turn is defined 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,” with a few enumerated exceptions. The Act excludes from the definition any otherwise lawful restrictive covenant that:

• is entered into in connection with the sale of a business;
• restricts disclosure, use, or access to confidential employer information or proprietary employer information; or
• promises a long-term incentive to the employee.

For purposes of the Act, a “long-term incentive” means “bonuses, equity compensation, stock options, restricted and unrestricted stock shares or units, performance stock shares or units, phantom stock shares, stock appreciation rights and other performance driven incentives for individual or corporate achievements typically earned over more than one year.”

Anti-Moonlighting Provisions
The Act also permits anti-moonlighting provisions restricting outside compensation for employment or operating of a business by a current employee to the extent that the employer reasonably believes that such work could: (i) result in the disclosure or use of the employer’s confidential or proprietary information; (ii) violate the employer’s, industry’s, or profession’s established rules regarding conflicts of interest; (iii) constitute a “conflict of commitment” for an employee of an accredited higher education institution by interfering with the employee’s primary duties for the institution; or (iv) impair the employer’s ability to comply with federal or DC laws or with a contract or grant.

If adopting workplace policies under any of these exceptions, employers must provide covered employees with a written copy of the policy (i) within 30 days after October 1, 2022; (ii) or within 30 days of the employee’s acceptance of employment; and (iii) any time the policy changes.

Retaliation Prohibited
Employers are strictly prohibited from retaliating against employees who refuse to agree to, or fail to comply with, an impermissible non-compete provision or workplace policy. Employers are also prohibited from retaliating against employees who either question or raise complaints about a non-compete agreement or policy that the employee reasonably believes is contrary to DC law, or who ask for copies of the provisions.

Requirements for Drafting Enforceable Non-Competes
The Act outlines specific requirements for tailoring permitted non-competes with highly compensated employees. To be valid and enforceable, any such agreement executed on or after October 1, 2022, must specify:

• the functional scope of the competitive restriction, including what services, roles, industry, or competing entities the employee is restricted from performing work in or on behalf of;
• the geographical limitations of the work restriction; and
• the duration of the restriction, not to exceed 365 calendar days from the date of separation (730 calendar days for medical specialists).

Employers must also provide the non-compete agreement to the highly compensated employee in writing at least 14 days before the start of employment or before a current employee is required to execute the agreement. In all cases, employers proposing a non-compete agreement must provide the following notice to the highly compensated employee simultaneously with the proposed non-compete provision:

The District of Columbia 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” 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).

Enforcement and Penalties
Employers may face both civil and administrative penalties for violations of the Act. The Act empowers the DC mayor or attorney general to fine employers $350 to $1,000 for each violation of the prohibition on non-competes (and the notice requirement) and of no less than $1,000 for violation of the retaliation prohibitions.

The Act also permits aggrieved employees to file complaints either with the mayor’s office or a civil court seeking penalties ranging from $500 to $1000 for each violation. Available damages if an employer that attempts to enforce a non-compete provision that is unenforceable or void shall be a minimum of $1,500 to each employee against whom the employer attempted to enforce the invalid non-compete provision, rising to a minimum of $3000 per employee for subsequent violations of the Act. Damages “for each instance of retaliation to each employee subject to the retaliation” shall be not less than $1,000 and not more than $2,500, rising to a minimum of $3,000 to each employee for subsequent retaliatory acts.

Next Steps for DC Employers
DC employers are well advised to prepare for the Act to go into effect on October 1, 2022, by reviewing the employment and restrictive covenant agreements they plan to ask current or prospective employees to sign after that date. Employers will have to decide whether to remove all non-compete provisions that could affect employees making less than $150,000 annually (or, for medical specialists, $250,000) or to support the validity of those provisions by providing long-term incentive compensation to the employees as part of the agreement. To the extent the restrictions are not narrowly tailored in terms of scope of activity, duration, and geographic reach, the provisions should be narrowed. Note that a provision with a duration stated in years should be revised to specify the maximum calendar day duration, as a one-year restriction would technically exceed the allowable duration if the restriction were applied during a leap year.

Employers should also review any workplace policy restricting current employees from outside employment and ensure that these are consistent with the amended law’s guidelines for anti-moonlighting provisions. In addition, employers should ensure that they comply with the Act’s written notice requirements.