DC Council Passes Non-Competition Clarification Act of 2022

Washington, DC employers won’t need to remove all of their non-compete agreements after all. On July 12, 2022, the DC Board (the “Board”) passed the Non-Competition Clarification Act of 2022 (B24-0256) (the “Amendment”), which, among other things, tempers the District’s near-universal ban on non-competition provisions to allow restrictions for highly paid employees. For a more in-depth analysis of DC’s original competition ban law, please see our previous articles here and here.

The Council postponed the initial ban several times in response to comments from employer groups. However, barring an unlikely veto or congressional action during the mandatory review period, the amended ban will go into effect on October 1, 2022. We detail the major revisions to the ban below.

Non-competition allowed for highly paid employees and medical specialists

In addition to allowing non-compete agreements with medical specialists earning more than $250,000 a year, the revised ban allows DC employers to enter into non-compete agreements with nearly any employee whose total compensation is or reasonably expected to be greater than $150,000 per year. The amendment clarifies that “remuneration” includes bonuses, commissions, overtime premiums, vested shares and other payments provided on a regular or irregular basis; however, fringe benefits will not be considered in calculating the threshold unless they are paid in cash or near cash. Beginning January 1, 2024, the threshold will increase in proportion to the average annual increase in the United States Department of Labor Consumer Price Index for all urban consumers in the Washington Metropolitan Statistical Area for the year previous calendar year adjusted to the nearest whole dollar.

A late-breaking, industry-specific change created an exception that prohibits non-competition for any employee, other than sales representatives, who works for a television, radio, cable, satellite, or other station or network broadcasting, regardless of the total remuneration.

Requirements for not competing with highly paid employees

The amendment provides certain requirements for non-competition agreements between an employer and a highly paid employee signed on or after October 1, 2022. To be valid and enforceable, such an agreement must:

• Specify the functional scope of the restriction, including departments, roles, industry or competing entities for which the employee is not authorized to perform work in or on behalf of;

• Describe the geographic boundaries of the work restriction; and

• Limit the duration of the restriction to a maximum of 365 calendar days from the date of separation (730 calendar days for specialist doctors).

Employers must also provide the non-competition to the highly paid employee in writing at least 14 days prior to commencing employment or performing the agreement.

In addition, similar to when proposing a non-competition clause with a medical specialist, the employer must provide the following notice to highly paid employees along with the proposed non-competition clause:

The District of Columbia’s Non-Competition Agreement Prohibition Act of 2020 restricts the use of non-competition agreements. It allows employers to request non-competition agreements from “highly paid employees” under certain conditions. [Name of employer] has determined that you are a highly paid employee. For more information about the 2020 Non-Competition Agreements Amendment Act, contact the District of Columbia Department of Employment Services (DOES).

Restrictions only apply to employees who work primarily in DC

The original prohibition applied to agreements with any employee who performs work or a prospective employee whose employer reasonably expects to perform work in Washington, D.C. The amendment clarifies that the prohibition only covers employees and prospective employees if (i) they spend or are reasonably likely to spend more than 50% of their working time in DC for the employer, or (ii) their employer is based in DC and they “regularly” spend an “amount substantial” time worked in DC and no more than 50% of their time worked for that employer working in another jurisdiction.

Exceptional sale of goodwill

The Amendment preserves the exclusion of non-competition agreements entered into concurrently with the sale of a business. This means that a buyer of a business can always insist that the seller refrain from competing with the buyer.

Continuous protection of confidential and proprietary information

The amendment also clarifies that employers may prohibit their employees from disclosing, using, selling or accessing the employer’s confidential and proprietary information during or after employment, and excludes “long-term incentives otherwise statutory definition of “non-competition provision”. such as bonuses, equity compensation and other performance-based incentives for individual or corporate achievements typically earned over more than one year

Amendments to the ban on undeclared work

In a welcome change from the original outright ban, the amendment allows for anti-black work provisions if the employer reasonably believes that outside employment could (i) result in the disclosure or use of the employer; (ii) cause a conflict of interest; (iii) constitute an “engagement conflict” for an employee of an institution of higher education; or (iv) interfere with the employer’s ability to comply with federal or district law or other contract.

However, employers whose workplace policies include one or more of these exceptions must provide the employee with a written copy of the provisions (i) by October 31, 2022; (ii) or within 30 days of the employee’s acceptance of employment; and (iii) whenever the policy changes.

Preparation for October 2022

Absent unexpected opposition from the mayor or Congress, we expect the amended ban to go into effect October 1, 2022. Employers operating in Washington, D.C. should review their standard employment contracts and their employee policies and remove any non-competition provisions that may affect employees. less than $150,000 per year and appropriately address all moonlighting restrictions to bring them into line with the amended law. should do so quickly, so that the agreements remain enforceable after the law comes into force.