On January 11, 2021, District of Columbia Mayor Muriel Bowser signed into law one of the strictest bans on non-compete agreements in the United States. Under the new law, titled the “Ban on Non-Compete Agreements Amendment Act of 2020,” non-compete agreements entered into on or after the law’s effective date will be considered void. The law also includes broad anti-retaliation provisions and penalties for non-compliance. Finally, it requires employers to provide employees with a specific written notice about the law.
The new law is subject to a 30-day legislative congressional review period, after which it will take effect. That is expected to occur on March 19, 2021.
The law states that no employer may require or request that an employee who performs work in the District of Columbia, or a prospective employee who an employer reasonably expects will perform work in the District of Columbia, sign an agreement that includes a non-compete provision. The law also states that any non-compete entered into after the effective date of the statute is automatically void.
The law defines a non-compete provision as any part of a written agreement between an employer and an employee that prohibits the employee from being employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business. The definition includes non-compete provisions that restrict an employee’s ability to work after they leave their employer, as well as provisions that restrict employees from obtaining other employment during their tenure with their current employer. In addition to the ban on non-compete provisions in written agreements, the law would also prohibit workplace policies that have the same effect.
The law applies to almost all employees working in the District of Columbia, regardless of how much the employee earns. The law includes exceptions for unpaid volunteers, lay members elected or appointed to office within a religious organization, babysitters, and medical specialists.
However, the law does not prohibit otherwise lawful provisions that restrict the employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or trade secret. It also contains an exception permitting non-compete provisions within or executed contemporaneously with an agreement between the seller and buyer of a business.
Within 90 days of the law’s applicability date, seven days after an individual becomes an employee, and 14 days after the employer receives a written request for a statement from the employee, employers must provide employees with a written notice containing the following:
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 law prohibits employers from retaliating against employees for refusing to sign a non-compete; asking or complaining about the existence, applicability, or validity of a non-compete provision or workplace policy the employee reasonably believes is prohibited under the law; or requesting the notice language above from the employer. Retaliation is defined as an adverse action against the employee, including a threat, verbal warning, written warning, reduction of work hours, suspension, or termination against one or more employees.
Employers found to be in violation of the law may be subject to an administrative penalty from the Mayor between $350 and $1,000 for each violation. An employee may also receive monetary relief between $500 and $1,000. An employer that attempts to enforce a non-compete provision that is void will be liable to each employee for relief of at least $1,500. Subsequent violations and/or retaliation would lead to additional fines. Employees may pursue relief by filing an administrative complaint with the Mayor or a civil action in a court of competent jurisdiction.
The Ban on Non-Compete Agreements Amendment Act of 2020 is consistent with a trend across the country to limit, or eliminate, the use of non-compete covenants. Employers with employees in the District of Columbia should immediately review and revise their existing employment agreements and policies to ensure compliance with this new law.
At the same time, because the new law does not prohibit otherwise lawful provisions that restrict the employee from disclosing the employer’s confidential, proprietary, or sensitive information, client list, customer list, or trade secret, and still allows otherwise lawful non-solicitation of customers or employees provisions, additional scrutiny should be paid to those provisions, so that they may be relied upon if necessary. For further assistance, please contact a member of O’Hagan Meyer’s Labor and Employment Team.