In April 2021, the District of Columbia passed what may perhaps be the broadest ban on non-compete provisions in employment agreements in the United States. As of now, the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), goes into effect on April 1, 2022, and absent any change to the pending law, will nearly abolish non-compete restrictions in D.C.
If the Act is enacted without change, it will broadly bind any “employer,” defined to mean any individual, corporation, partnership, general contractor, subcontractor, association, corporation, or business trust operating in D.C., excluding the United States and D.C. governments. However, the Act does not provide any guidance as to what it means for an employer to be “operating” in D.C. Thus, it is not clear if the Act extends to an employer whose only connection to D.C. may be, for example, that one of its employees works from home in D.C. or from time-to-time renders services in D.C., or if more employer presence in D.C. is required.
If covered by the Act, then applicable D.C. employers will be prohibited from requiring or requesting “that an employee sign an agreement that includes a non-compete provision.” Importantly, the term “non-compete provision” means “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.” This means that most employers in D.C. will not be able to prevent their employees from working for a competitor, either during, or after the term of their employment.
However, the Act does have some exemptions and exclusions. For example, the Act does not prohibit non-solicitation provisions or provisions that protect an employer’s trade secrets and other proprietary information. The Act also excludes non-compete agreements entered into simultaneously with the sale of a business, allowing a business to insist that the seller does not compete with the buyer.
Further, the Act prohibits retaliation against any covered D.C. employee for (i) refusing to agree to a non-compete provision prohibited by the Act, (ii) failing to comply with a non-compete provision or workplace policy rendered unlawful by the Act, (iii) asking, informing, or complaining about a non-compete provision or workplace policy reasonably believed to be prohibited by the Act, whether to the employer, a coworker, the employee’s lawyer or agent, or a government entity, or (iv) requesting the notice statement required by the Act.
The Act defines retaliation to include any adverse action, including a threat, verbal or written warning, reduction of work hours, suspension, or termination.
After April 1, 2021, all covered non-compete provisions will be void and unenforceable. Arguably, the Act will not invalidate non-compete provisions in agreements entered into prior to the Act’s applicability date. on the other hand, non-competes entered into prior to such date continue to be governed by D.C. common law, where the enforceability of a non-compete generally depends on the reasonableness of the covenant under the circumstances.
For now, while there is still a bit of time left, all D.C. employers are strongly suggested to review their current restrictive covenants so they can plan and act in accordance with the Act. This might include revising any current restrictive covenants with current employees as needed.