The Council of the District of Columbia passed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “Act”), one of the strictest bans on employee non-compete agreements in the country, approximately two years ago. After several delays and modifications, the amended Act – aptly named the Non-Compete Clarification Amendment Act of 2022 (D.C. Act 24-526) – was signed into law July 27, 2022 and finally took effect Oct. 1, 2022. Unlike the original 2020 Act, which sought to impose a broad, nearly all-encompassing ban on employee non-compete agreements during and after employment, the amended final Act narrows the application of its restrictions by clarifying which employees are covered by its restrictions on the use of non-compete provisions and agreements, which provisions in workplace policies or employment agreements will not violate its restrictions and providing an express exception for “highly compensated employees.” The final Act also specifies what must be contained in a non-compete agreement for it to be valid and enforceable; establishes minimum notice requirements; clarifies remedies for violations of the law; and explains how the Act relates to collective bargaining agreements, other D.C. laws and rulemaking requirements. The significant portions of the Act are highlighted below.

Covered Employees

A current or prospective employee is covered by the Act’s restrictions if (1) the employee spends or will spend more than 50% of their work time for the employer working in D.C. or (2) the employee’s employment is or will be based in D.C. and they regularly spend or will regularly spend a substantial amount of their work time in D.C. and not more than 50% of their work time in another jurisdiction. Generally speaking, employees who meet this requirement and earn less than $150,000 per year cannot be required to sign non-compete agreements pursuant to the Act.

Highly Compensated Employees

On the other hand, “highly compensated employees” – generally, those earning $150,000 or more annually (or $250,000 or more annually in the case of “medical specialists”) – are expressly excluded from the Act’s non-compete restrictions. As a result, employers may still enter into non-compete provisions and agreements with highly compensated employees subject to the content requirements set forth below. Notably, this exception explicitly excludes “broadcast employees” who cannot be required to sign a non-compete agreement under any circumstances, regardless of compensation or status. According to the Act, a “broadcast employee” is “an on- or off-air creator (such as an anchor, disc jockey, editor, producer, program host, reporter, or writer)” employed by an entity that provides broadcasting services, such as news, weather, traffic, sports or entertainment programming, including a television station or network, radio station or network, cable station or network or an entity that provides “[s]atellite-based services similar to a broadcast station or network.”

For a non-compete agreement with a highly compensated employee executed on or after Oct. 1to be valid and enforceable, the agreement must specify the following three things:

(1) “[t]he 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”;

(2) “[t]he geographical limitations of the work restriction”; and

(3) a term of noncompetition that is not greater than “365 calendar days from the date the employee separates from employment with the employer,” or, in the case of a medical specialist, a term of noncompetition not greater than “730 calendar days from the date the employee separates from employment with the employer.”

Additionally, the employer must provide the non-compete provision to the highly compensated employee in writing at least 14 days before the individual commences employment or, for existing employees, at least 14 days before the employee is required to execute the agreement. Whenever a non-compete provision is proposed to a highly compensated employee, the employer must also provide the employee with the following statutory notice in writing:

The District’s 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, as that term is defined in the Ban on Non-Compete Agreements Amendment Act of 2020, 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).

Scope of Restrictions

Under the Act, a “non-compete” 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.” (Emphasis added.) Accordingly, the Act limits an employer’s ability to prohibit a covered D.C. employee from working competitively both during and after employment, though there are some exceptions.

Significantly, non-compete agreements entered into prior to Oct. 1, 2022 are “grand-fathered” and will remain valid and enforceable notwithstanding the Act. In addition, for purposes of the Act, the term “non-compete” does not include the following types of agreements and provisions, which are therefore permitted:

(1) agreements restricting an employee from using, selling, accessing or disclosing confidential employer information and trade secrets;

(2) non-competes included as part of a contract for the sale of a business;

(3) long-term incentive agreements providing performance-driven incentives for individual or corporate achievements typically earned over more than one year; and

(4) provisions restricting an employee from accepting compensation for performing work for someone other than the employer during their employment with the employer, because the employer reasonably believes the employee’s compensation under such circumstances will: (a) “[r]esult in the employee’s disclosure or use of confidential employer information or proprietary employer information;” (b) “[c]onflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest;” (c) “[c]onstitute a conflict of commitment if the employee is employed by a higher education institution;” or (d) “[i]mpair the employer’s ability to comply with District or federal laws or regulations; a contract; or a grant agreement.” However, any employer with a workplace policy that includes one or more of these exceptions must provide a written copy of the policy provisions to an employee within 30 days after the employee accepts employment, within 30 days after Oct. 1, 2022, and any time the policy changes.

Employer Takeaways

Employers with non-compete agreements executed prior to Oct. 1 need not alter or amend such agreements, as they are expressly excluded from the Act’s coverage. Going forward, however, D.C. employers can no longer require employees to sign non-compete agreements or otherwise restrict an employee’s ability to work for another employer or operate their own business during or after employment unless an exception exists. As such, employers wishing to use non-competes after Oct. 1 2022 will need to determine whether an individual is a “covered employee” under the Act and if so, whether they trigger any exceptions such that they may be subject to a non-compete before requesting or requiring them to sign such an agreement. Employers should ensure that any non-compete agreements entered into after Oct. 1 with employees excluded from the Act’s restrictions (i.e., highly compensated employees) meet the content requirements in order for such agreements to be valid and enforceable.

For covered employees who may not be subject to a non-compete, employers may consider using other types of agreements exempted by the Act to impose restrictions during or after employment such as long-term incentive agreements or provisions limiting simultaneous conflicting employment. Employers should review and, if necessary, update their existing policies related to outside employment and the use and disclosure of confidential information to comply with the Act’s restrictions, and provide notice of any such policies to covered employees in accordance with the Act.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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