D.C. Mayor Muriel Bowser signed a bill to ban virtually all noncompetes for employees in D.C. It is likely to take effect in about a month, requires some affirmative conduct, and carries potentially hefty fines for violations.
The details are below, but first a little background:
Whether Mayor Bowser had signed the bill or not, the D.C. Council had passed the bill unanimously and therefore presumably had enough votes to override a veto. And, as you may recall from the post, 47 states can’t be wrong: D.C. to ban noncompetes (maybe), the prior version of the bill — which was supported by only eight Council members — sought to ban noncompetes only for low-wage workers. Given that the Council went from eight votes on a low-wage noncompete ban to unanimity on a near-complete ban, the Council clearly wanted stronger restrictions and would likely have voted to override a veto.
Nevertheless, the Mayor did sign the bill (on January 11).
The bill still needs to go through Congress under the Home Rule Act (section 1-206.02(c), for anyone who cares). That process will take another month or so. It’s highly unlikely that Congress will disapprove the bill, and, as a consequence, it’s very likely to become law. Of course, as noted when the Council passed the bill, Congress’s consideration of the bill may shed light on their view about how noncompetes should be regulated – including whether they should (and can) be regulated at the federal level.
In the meantime, here’s what you need to know (details are below):
- Who’s covered: almost every employee in D.C. (and possibly more).
- What’s prohibited: virtually all noncompetes — including moonlighting restrictions — and retaliation against employees who object to or complain about noncompetes, or who discuss the law.
- What’s not prohibited: nondisclosure agreements, noncompetes in connection with the sale of a business, and (maybe) other restrictive covenants.
- What’s required: providing a copy of a prescribed notice to your D.C. employees and (potentially) recordkeeping.
- The consequences of violation the law: potentially hefty fines.
The details are below.
But if you want to cut to the chase, you can jump straight to “What do you need to know and do now?”
The bill would prohibit noncompetes for most employees who work in D.C.
Employees are defined as “individual[s] who perform work in the District on behalf of an employer . . . .” They also include prospective employees: “any prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the District . . . .”
That definition raises more questions than it answers: What does it mean to perform work in the district? What if an employee is based in Maryland or Virginia, but occasionally has work in the District — is that employee covered? What if an employee works remotely, living in D.C. but directing their services into Maryland or Virginia? I suspect that the intent is to cover employees who are both located in D.C. and primarily provide services in the District.
Those vagaries aside, here’s who can still receive a noncompete (together with my comments in italic to the extent anyone cares):
- Volunteers. This is a bit counterintuitive. If you’re paid to work (and therefore given consideration for agreeing to a noncompete), you can’t be bound to a noncompete. But, if you receive no compensation whatsoever and, instead, volunteer your time, you can be bound by a noncompete. I suspect the rationale must lie in the notion that volunteers don’t need the work, and therefore there is not the same presumed inequality in bargaining power. While that may be true for people volunteering for charities, what about, for example, student interns who need experience on their resume?
- Lay members holding office in a religious organization engaged in religious functions.
- “Casual” babysitters. In what world is a noncompete appropriate for a babysitter? The same world in which volunteers can be restricted more than people who are paid for the same work, I guess.
- “Medical specialists,” defined essentially as any practicing doctor who earns at least $250,000. This is the inverse of what most states are doing and the Obama Administration recommended in its Call to Action on noncompetes. Specifically, there has been a movement to ban noncompetes for healthcare workers generally, but keep them for most others (except so-called “low-wage” employees, however defined).
- Government employees (D.C. and federal). Though not excluded from the definition of “employee” like the others, government employees are excluded because the District and the federal government are both excluded from the definition of “employer.” No surprise. Companies can’t use noncompetes because they’re supposedly bad for employees, but the government (of the people, by the people, for the people) can. (Noncompetes apparently aren’t a problem for an employee when the government imposes them.) Nothing like a good, old-fashioned double standard benefiting the people making the rules. (The ultimate parens patriae!) We will do as you say, not as you do.
New noncompetes are prohibited. Noncompetes (called a “non-compete provision”) are defined as follows:
a provision of a 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.
Let’s parse this out.
First, on it’s face, it is both vague and potentially incredibly broad.
Read literally, the bill arguably bans only comprehensive prohibitions on employment, as opposed to tailored restrictions. Specifically, the law would prevent only “a provision . . . that prohibits the employee from being . . . employed” or “a provision . . . that prohibits the employee from . . . performing work or providing services . . . .” However, a restriction that permits the other employment, but simply limits — but does not outright prohibit — the work or services the employee can do for the other employer would therefore arguably not be covered. For example, you can work for a competitor, but you cannot engage in competitive sales for them. Indeed, the Defend Trade Secrets Act makes this very distinction insofar as it prohibits court orders that “prevent a person from entering into an employment relationship,” but permits courts to impose “conditions” on the employment.
Alternatively, the language can be read to sweep so broadly as to prohibit any restriction whatsoever on the employee’s work or services for another employer. If this is the intent, that would likely mean that even nonsolicitation and no-service restrictions and no-recruit/no-raid agreements are prohibited — an interpretation supported by the the doctrine of expressio unius est exclusio alterius insofar as the bill expressly permits nondisclosure agreements and noncompetes in connection with the sale of business (see below)), but does not mention other restrictive covenants.
Did the Council think this through? It does not appear so — at least based on what’s in the public record. Rather, it appears that they simply intended to ban noncompetes and wound up creating confusion in the process. Hopefully, this will get cleared up quickly.
Second, and most troubling, the ban prevents restrictions on concurrent employment. That means that the same scope of the restriction on post-employment activities will apply with equal force during employment. If you cannot have any limitations after employment, you cannot have any limitations during employment.
Presumably, fiduciary duties will still govern an employee’s concurrent employment, but that’s not specifically referenced, as it (sort of) is in Maryland’s 2019 low-wage noncompete ban that also prohibits restrictions on moonlighting, but makes clear that for non-low-wage employees, preexisting law (including conflict of interest rules) will apply.
However, it is not entirely clear how fiduciary duties will apply, given that this language is supplemented by the following separate prohibition (which suffers from the same vague and potentially incredibly broad language issues):
No employer may have a workplace policy that prohibits an employee from:
(1) Being employed by another person;
(2) Performing work or providing services for pay for another person; or
(3) Operating the employee’s own business.
And, note that “workplace policy” is defined to include both written rules and unwritten practices.
Separately, the law will (no surprise) prohibit retaliation (including threatened retaliation) against employees who:
- refuse to sign a noncompete;
- fail to comply with a noncompete or unlawful workplace policy;
- ask, discuss, or complain (to the employer, a coworker, a lawyer or agent (whatever that means), or governmental entity) about a noncompete or unlawful policy; or
- request information about the law.
Similarly, an employer may not retaliate against a medical specialist who engages in conduct described in the last two bullets above.
It always surprises me to think that you need to tell someone that they can’t retaliate against someone for following the law.
One important note: The bill’s ban of noncompetes is not retroactive. Existing noncompetes will be unaffected (at least directly). But, the policy restrictions are immediate and will apply to existing policies and practices.
What’s not prohibited?
The bill expressly carves out two types of agreements from its scope: nondisclosure agreements (a.k.a confidentiality agreements) and noncompetes in the context of a sale of business.
Here’s the language:
The term “non-compete provision” does not include:
An otherwise lawful provision that restricts the employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or a trade secret, as that term is defined in section 2(4) of the Uniform Trade Secrets Act of 1988, effective March 16, 1989 (D.C. Law 7-216; D.C. Official Code § 36-401(4)); or
(B) An otherwise lawful provision contained within or executed contemporaneously with an agreement between the seller of a business and one or more buyers of that business wherein the seller agrees not to compete with the buyer’s business.
The bill does not (expressly) carve out any other restrictive covenants, but, as noted above, is vague and broad enough to plausibly prohibit such other covenants, including nonsolicitation and no-service agreements and no-raid/no-recruit agreements.
What else does the bill require?
The bill requires that employers provide the following language to all D.C. 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 language must be provided in three timeframes:
- within 90 days of the “applicability date” of the Act;
- within 7 days of an individual becoming an employee (and remember that employee includes prospective employees);
- within 14 days of a written request from an employee for the language.
There are separate requirements for medical specialists. Specifically:
- The noncompete must be provided “at least 14 days before execution of the agreement containing the” noncompete. (It’s unclear whose execution that would be — the employer’s or employee’s or both — or how that would work if the employee chooses to execute it before the 14 day period expires.)
- The following language must be provided at the same time the noncompete is provided:
The Ban on Non-Compete Agreements Amendment Act of 2020 allows employers operating in the District of Columbia to request non-compete terms or agreements (also known as “covenants not to compete”) from medical specialists they plan to employ. The prospective employer must provide the proposed non-compete provision directly to the medical specialist at least 14 days before execution of the agreement containing the provision. Medical specialists are individuals who: (1) perform work on behalf of an employer engaged primarily in the delivery of medical services; (2) hold a license to practice medicine; (3) have completed a medical residency; and (4) have total compensation of at least $250,000 per year.
While not directly required, the bill anticipates that regulations may be promulgated requiring employers to maintain records of compliance with the law. If that happens, any such records will need to be “open and made available for inspection or transcription by the Mayor, the Mayor’s authorized representative, or the Office of the Attorney General upon demand at any reasonable time.”
What are the consequences of violating the new law (when it becomes law)?
While the bill includes some minimum due process procedures, the Mayor can essentially assess an “administrative penalty of no less than $350 and no more than $1,000 for each violation of this title; except, that the penalty for each [act of retaliation] assessed against an employer shall be for not less than $1,000.”
And, beyond that, the bill includes a complicated “relief and penalties” scheme, with fines up to $3,000 per employee per incident for subsequent violations.
What do you need to know and do now?
If the bill becomes law, there are affirmative steps required:
- Check your agreements.
Because you cannot even ask a D.C. employee to sign an agreement that includes a noncompete, any agreements that employees sign that include noncompetes that would be applicable to D.C. employees must be updated to remove the noncompete for them. That means that you also should not have a reference to a noncompete in your offer letters.
And remember that it’s not yet clear if that ban includes other restrictive covenants. So, have a plan about how to handle that. For example, there are alternatives to noncompetes that are not prohibitions on competition, but rather disincentives to compete. There are several variations, some of which, in some states, are treated like noncompetes; but, in others, they’re not. And, there are some that have not been tested. I will discuss them in a subsequent post. But, one or more may survive D.C.’s ban — and any other ban (including the potential Biden ban).
- Check your policies.
If you have policies that would violate the act — including by precluding moonlighting — they need to be eliminated before the bill becomes law.
- Change your practices.
Many companies have unwritten practices. Those are covered by this bill. Accordingly, if you have practices that would violate the bill, they need to change before the bill becomes law. That means that employers need to make sure, for example, that supervisors are not discouraging employees from moonlighting, including by telling the employee that it’s okay to moonlight, but saying it with a nod and wink, suggesting that it is not really permissible.
- Be prepared to provide a copy of the statutory language to every affected employee.
Although you will have 90 days to roll out the language, you also need to provide a copy to any new employee within 7 days of their start and within 14 days to anyone who asks for a copy. Accordingly, it’s unclear which timeframe will apply if, for example, you hire a new employee before the expiration of the 90-day rollout window. How will you provide it? Will a posting with other workplace notices be sufficient? You will need a plan.
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This is a law that you need to stay ahead of. We’ll keep you posted, but it’s very likely coming your way soon.
Next stop: Congress.