Washington, D.C. Narrows Ban on Non-Compete Agreements

Henry A. Platt

Published

For the second time in a two-year span, the D.C. City Council voted in favor of largely banning non-compete agreements within the District. As we wrote in May 2021 (click here to read), the D.C. City Council initially passed the Ban on Non-Compete Agreements Amendment Act of 2020 (the "Act"), which would have imposed blanket bans on non-compete agreements for employees working in D.C. without a cap on income and without a carve out for employees who would moonlight for a competitor company while still employed for their primary employer. Shortly after it passed, however, the D.C. Council delayed implementation of the Act until April 2022, then again until October 2022 after considerable push back from the D.C. business community.

On Tuesday, July 12, 2022, after negotiations and revisions to the Act, the D.C. Council finally passed an amendment to the Act's broad ban on all non-compete agreements in one major way: by modifying the definition of "covered employees" to include only those employees who earn less than $150,000 in total compensation (or less than $250,000 for medical specialists). "Total compensation" is defined to include unrestricted stocks and "other payments provided on a regular or irregular basis." This definition specifically includes bonuses, commissions, and overtime payments, but does not include fringe benefits. Through a memorandum entered into the Council record along with the proposed amendment, the bill's sponsor stated that this amendment "still gives the District the most expansive prohibitions compared to nearly a dozen states that have enacted laws to limit uses of non-competes," but strikes a balance for a "more reasonable cut off point" for those higher earners who are "often exposed to employer trade secrets and other proprietary confidential information that drives strategic advantages for a business."

Additionally, the amendment clarifies that the ban on non-compete agreements does not affect an otherwise lawful long-term incentive, such as a cash, equity, or share plan. The D.C. Council also passed a separate amendment re-imposing a provision that exempts broadcast employees from the income ceiling by applying the ban on non-competes to all on- or off-air content creators.

Despite these changes to the original bill, nothing in the amendment prohibits an employer from barring employees from using or disclosing confidential and/or proprietary information either during or after their employment. Further, on its face, the Act as amended does not appear to affect employers' efforts to reasonably restrict former employees from soliciting clients or customers, and is not retroactively applied to existing non-compete agreements.

Mayor Muriel Bowser signed the amended bill on July 29, 2022, setting the new law on a path for implementation by October 1, 2022.

If you have any questions about the District of Columbia's new non-compete ban or how best to prepare for its implementation, please contact an attorney in Saul Ewing's Labor and Employment Practice Group.

Authors
Henry A. Platt