D.C. Passes Ban on Non-Compete Agreements

Josh SchmandJosh Schmand

On December 15, 2020, the District of Columbia Council unanimously passed the Ban On Non-compete Agreements Amendment Act Of 2020. The Act generally prohibits the use of non-compete provisions in employment agreements and workplace policies. The Act will soon become law as D.C. Mayor Muriel Bowser is likely to sign the Act and Congress is unlikely to pass a joint resolution of disapproval.

The ban on non-competes in the Act will apply to all employers in the District and nearly any employee working in the District regardless of how much they are earning. Employers will also have to provide written notice of the Act to all of their employees.

What is a non-compete agreement?

Under the Act, a “non-compete provision” is a written agreement between an employer operating in the District and any individual who performs work (or who an employer reasonably anticipates will perform work) in the District that prohibits the individual from: (1) being simultaneously or subsequently employed by another person, (2) performing work or providing services for pay for another person, or (3) operating the individual’s own business.

The Act does not apply to otherwise lawful provisions that restrict an individual from disclosing their employer’s confidential, proprietary, or sensitive information, client list, customer list, or trade secrets. The Act also does not apply to otherwise lawful provisions contained within or executed contemporaneously with an agreement between the buyer and seller of a business where the seller agrees not to compete with the buyer’s business.

The Act does not address solicitation of employees or customers, so employers should review non-solicitation agreements with counsel to ensure compliance.

What does the Act prohibit?

Under the Act, no employer in the District of Columbia may require or request that an employee performing work in the District (or who an employer reasonably anticipates will perform such work) sign an agreement that includes a non-compete provision. Additionally, no employer in D.C. may have a workplace policy that similarly 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 individual’s own business. Any such agreements entered into after the Act becomes law will be void and unenforceable in court.

The Act also prohibits employers from retaliating (or threatening to retaliate) against employees for: (1) refusing to agree to a non-compete provision, (2) failing to comply with a non-compete provision or workplace policy made unlawful by the Act, (3) asking, informing, or complaining to an employer, a coworker, a lawyer, or governmental entity about the existence, applicability, or validity of a non-compete provision or a workplace policy that the employee reasonably believes is prohibited by the Act, or (4) requesting information that the Act requires be provided from an employer.

Are there any exceptions?

The ban on non-competes in the Act do not apply to:

  1. The District of Columbia government or the United States government;
  2. Volunteers engaging in the activities of an educational, charitable, religious, or nonprofit organization;
  3. Lay members elected or appointed to office within the discipline of any religious organization and engaged in religious functions;
  4. Individuals employed as a casual babysitter in the residence of their employer; and
  5. Licensed physicians that perform work on behalf of an employer engaged primarily in the delivery of medical services earning at least $250,000 per year.*

* Employers seeking to have medical specialists sign a non-compete agreement must provide the document to the employee for review at least 14 days before executing the agreement along with written notice of the Act.

Are there notice requirements?

Employers must provide their employees with the following text: “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.”

Employers must provide existing employees with this notice, in writing, within 90 days after the Act becomes law. Going forward, employers have seven days after an individual becomes an employee to provide the required written notice. And, employers have 14 days to provide the notice in response to a written request from an employee.

What are the penalties?

In addition to having a non-compete provision becoming void and unenforceable in court, employees who are asked to sign a non-compete agreement banned by the Act or who suffer retaliation from an employer for activities prohibited by the Act may file a complaint with the Mayor or take action in civil court.

The Mayor may assess administrative penalties of $350 to $1,000 for each violation, except that penalties for retaliation against employees shall be greater than $1,000. The Mayor and the Office of the Attorney General (OAG) may also require employers to submit records showing compliance with the Act upon demand at any reasonable time.

Employers that violate the Act shall be liable for relief payable to each employee of $500 to $1,000 for each violation, and at least $3,000 to each employee for subsequent violations. But, employers that attempt to enforce newly void or unenforceable non-compete provisions shall be liable for relief payable to each employee of at least $1,500, and at least $3,000 to each employee for subsequent violations. And, employers that retaliate against employees in violation of the Act shall be liable for relief payable to each employee of $1,000 to $2,500 for each violation, and at least $3,000 to each employee for subsequent violations.

How does the Act compare to Maryland and Virginia’s restrictions?

The original proposal of the legislation introduced in October 2019 prohibited the use of non-compete agreements for employees whose rate of pay was less than or equal to three times the minimum wage, similar to the restrictions in neighboring Virginia and Maryland, which have prohibited non-compete agreements for certain “low” wage earners. However, as discussed above, if the Act becomes law, it will expand the ban to nearly any employee in the District and become one of the Nation’s strictest laws concerning bans on non-compete agreements.

For more information, contact Josh at 301-347-1273 or jcschmand@lerchearly.com.

Virginia Ban on Non-Competes for “Low” Wage Employees

Josh SchmandJosh Schmand

Along with a number of other employer friendly laws passed this summer (Values Act and Wage Theft Law), Virginia has joined Maryland in prohibiting non-compete agreements with certain “low” wage workers.

What is a non-compete agreement?

Under the new law, a “covenant not to compete” or non-compete agreement is an agreement between an employer and employee that restrains, prohibits, or otherwise restricts an individual’s ability, following the termination of the individual’s employment, to compete with his/her former employer.

Which employees are considered “low” wage earners?

Who is a “low” wage earner is a bit of a moving target. The new law defines a “low-wage employee” as an employee whose average weekly earnings during the previous 52 weeks (or if an employee worked fewer than 52 weeks, the average weekly earnings for the number of weeks that the employee worked) are less than the average weekly wage in the Commonwealth as determined by the Virginia Employment Commission (VEC). The VEC may issue a new average weekly wage as frequently as every quarter; recently the VEC calculated the average wage as $1,204 per week or $62,608 per year. This means that a non-compete that was enforceable when entered could violate the new law when employers attempt to enforce it if the employee now qualifies as a “low” wage earner.

Interns, students, apprentices, or trainees are all considered “low” wage earners. As are independent contractors making an hourly rate less than the median hourly wage for all jobs over the past year in the Commonwealth, as determined by the Bureau of Labor Statistics of the U.S. Department of Labor, which was recently calculated at $20.30 per hour.

The new law does not cover employees that earn their salary predominantly through sales commissions, incentives, or bonuses.

What is prohibited by the new law?

Employers are prohibited from entering into, enforcing, and even threatening to enforce non-compete agreements with any “low” wage employee from July 1, 2020 going forward. This means that non-compete agreements that were entered into before July 1, 2020 are safe, but employers should consult counsel before enforcing or threatening to enforce those agreements.

By its terms, the new law does not apply to similar contracts, such as confidentiality or nondisclosure agreements, that protect employers’ trade secrets and confidential or proprietary information.

The new law leaves some grey area regarding when it applies to non-solicit agreements with customers, so employers should review client non-solicitation agreements with counsel to ensure compliance.

The new law does not address other types of employment restrictions, such as prohibitions against the solicitation of employees.

What are the penalties?

Employers are subject to a civil penalty of $10,000 for each violation of the new law, as well as private rights of action. In addition to lost compensation that can be awarded in a lawsuit, a “low” wage employee is entitled to recover reasonable costs, including attorneys’ fees, from employers that enter into, enforce, or threaten to enforce a non-compliant non-compete agreement.

Are there other requirements for employers?

Employers must post a copy or summary of this new law with its other required posters. Failure to comply with the posting requirements will subject employers to a written warning for the first violation, a penalty of up to $250 for a second violation, and a penalty of up to $1,000 for a third and each subsequent violation.

Is D.C. next?

D.C. has introduced a similar ban on non-competes for low wage employees.

For more information, contact Josh at 301-347-1273 or jcschmand@lerchearly.com.