The District of Columbia is the latest to join the trend of increasing regulation regarding an employer’s use of non-competition agreements. On January 11, 2021, District of Columbia Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”). It is anticipated that the Act will become effective following a 30-day period of Congressional review and publication in the D.C. Register.
Increasing Regulation Regarding the Use of Non-Competition Clauses in the District of Columbia-Maryland-Virginia (“DMV”) Area
In general, a non-compete clause prohibits an employee from working for a competing employer after leaving a company’s employment. Usually, a valid non-compete clause involves a specific length of time and/or geographic area for the application of the non-compete clause.
In the last two years, Maryland, Virginia, and now, D.C. have passed regulations restricting the use of non-compete agreements in employment contracts. Effective October 1, 2019, Maryland’s Non-Compete and Conflict of Interest Clause Act prohibits non-compete clauses for “low-wage” employees – employees who earn an amount equal to or less than $31,200 annually or $15.00 per hour. Similarly, effective July 1, 2020, Virginia enacted a law banning non-compete clauses for “low-wage” workers – workers whose average weekly earnings during the previous 52 weeks “are less than the average weekly wage of the Commonwealth” as calculated pursuant to VA Code § 65.2-500(b). Reports regarding data kept by the Virginia Employment Commission (“VEC”) indicate the average weekly wage could be as low as $1,204 per week, which would equate to approximately $62,600 annually.
D.C.’s Ban on Non-Compete Clauses is the Most Restrictive Yet
D.C.’s ban on the use of non-compete clauses goes above and beyond Maryland’s and Virginia’s restrictions on the use of non-compete clauses for so-called “low-wage” workers. A couple of the Act’s most distinctive features make it one of the most expansive bans on non-compete provisions in the United States. Specifically:
- The Act covers most employers and employees. The Act excludes unpaid volunteers, lay members elected or appointed to office within any religious organization, babysitters, and certain medical specialists from the definition of a covered “Employee.” Additionally, the District of Columbia and federal government employers are excluded from the definition of a covered “Employer.” However, outside of these limited exclusions, the Act generally applies to all employers and employees, irrespective of the amount earned by the employee.
- The Act prohibits the use of non-compete restrictions during as well as after employment. The Act broadly defines non-compete provisions as provisions that “prohibit the employee from being simultaneously or subsequently employed by another person, performing work or providing services to pay for another person, or operating the employee’s own business.” Consequently, the Act appears to allow an employee to simultaneously work for an employer and its competitor.
What else do DMV Employers Need to Know About the Act?
- The Act is not retroactive. It only applies to non-compete agreements entered into after the Act’s effective date.
- The Act confirms that employers can continue to use confidentiality agreements to protect confidential, proprietary, or sensitive information, client lists, customer lists, and trade secrets.
- The Act is silent regarding the use of non-solicitation provisions restricting the solicitation of employees, customers and/or clients. Interpretation by the courts may determine the applicability of the Act to such non-solicitation provisions.
- Employers must provide the following written notice to 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.”
- This written notice must be provided to: (1) existing employees ninety (90) calendar days after the Act becomes effective, (2) newly hired employees within seven (7) calendar days of their first day of employment, and (3) an employee within fourteen (14) calendar days of the employer’s receipt of a written request for notice from the employee.
- The Act prohibits retaliation, or threats of retaliation, against an employee for refusing to agree to or failing to comply with a prohibited non-compete provision, or for making a complaint regarding a provision the employee reasonably believes to be prohibited.
- Penalties for non-compliance with the Act’s requirements may include fees of $350 to $1,000 for each violation of the Act’s non-compete and/or notice provisions; fines in excess of $1,000 for any event of retaliation; and penalties payable to each effected employee in an amount between $500 to $2,500 for each violation, and no less than $3,000 for subsequent violations.
Next Steps for Covered Employers
Employers should anticipate the Act becoming effective following Congressional review and publication in the D.C. Register. In preparation for the effective date of the Act, covered employers should:
- Review current policies and template contracts/agreements for compliance;
- Comply with employer notice obligations upon the Act becoming effective; and
- Consult with legal counsel regarding specific compliance issues, such as which requirements apply when an employee works in more than one jurisdiction.
For additional information regarding recent regulations affecting employers in the DMV area, please see “Ban the Box” – Now Effective in Maryland and Coming to Federal Projects Soon, What Employers Need to Know About Recent Changes to Virginia’s Employee Record Laws, and What Employers Need to Know Regarding Employee-Friendly Changes to Maryland Law Effective October 1, 2019.
Employers should also monitor the development of a ban on non-compete agreements at the federal level. In December 2020, President Biden released his Plan for Strengthening Worker Organizing, Bargaining, and Unions (the “Plan”). The elimination of the use of non-compete agreements, with limited exceptions, is one key element of the Plan. President’s Biden’s Plan is not the first time a national ban on non-competition clauses has been pursued. However, with the Democrats now in control of Congress, a nationwide reform on the use of non-compete agreements may be on the horizon.