On January 11, 2021, the mayor of the District of Columbia signed D.C. Act 25-563, the Ban on Non-Compete Agreements Amendment Act of 2020 (the Act), which was then submitted to Congress for approval in accordance with the District of Columbia Home Rule Act. Following a 30-day Congressional review period, the Act is expected to become law on March 19, 2021, whereupon the District of Columbia will join California, North Dakota, and Oklahoma in imposing a near complete ban on non-competes and related restrictions.
Coverage of the Act
Once the Act becomes law, its protections will apply prospectively and will extend to all private employers operating in the District of Columbia and almost every employee who performs work in the District of Columbia. The only employees excluded from the Act's coverage are certain volunteers, casual babysitters, medical specialists, religious employees, and employees of the District of Columbia and United States governments. Notably, the Act does not exclude independent contractors, who may or may not fall within its coverage.
Non-Compete Restrictions
The Act prohibits employers from requiring or requesting employees to sign an agreement that includes a "non-compete provision." A non-compete provision is defined by the Act as any written provision prohibiting an employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee's own business. Put simply, employers cannot ask, much less require, employees to sign any agreement that contains language preventing the employee from competing with the employer both during and after the employee's employment. Any such language will be void and unenforceable as a matter of law and may subject the employer to penalties as set forth in the Act. The Act does not, however, address whether it also prohibits customer non-solicitation provisions, forfeiture-for-competition provisions (i.e., provisions requiring former employees to surrender post-employment benefits in the event that they elect to compete with their former employer), or other such restrictions.
The Act also bars workplace policies that prohibit employees from being employed by another person, performing work or providing services for pay for another person, or operating their own business.
Notwithstanding its broad prohibitions, the Act does permit covenants not to compete contained within or executed contemporaneously with an agreement for the sale of a business. Importantly, the Act also permits employers to enter into agreements with employees that prohibit them from disclosing their employers' confidential, proprietary, and trade secret information, including client and customer lists.
Notice Requirement
Employers are required to provide current and new District of Columbia employees with a written notice of the Act no later than 90 calendar days after the Act becomes law, seven calendar days after an employee's first date of employment, and 14 calendar days after an employer receives a written request for such notice from an employee. The text of the required notice is set forth in the Section 102(e)(1) of Act.
Employer Takeaways
Employers should carefully review the Act and, in anticipation of it becoming law, update their employment agreements, policies, and onboarding practices accordingly. While employers will need to remove non-compete provisions from the employment agreements they provide to all District of Columbia employees going forward (unless related to employees exempted from coverage under the Act), because employers will be more vulnerable to the effects of employee competition, they may also want to consider bolstering other protections memorialized in employment agreements, such as confidentiality obligations and assignment of intellectual property provisions.
The complete reach of the Act will not be settled until it is adopted and courts thereafter interpret it or until the Act is clarified through subsequent regulations. Until then, employers should be cognizant of the possibility that the Act's prohibitions will reach employees who are only temporarily performing work in the District of Columbia, employees who live outside of the District but commute and work within the District, as well as independent contractors, and that the Act may also prohibit forfeiture for competition provisions, certain conflict of interest and/or conflicting obligation provisions, customer non-solicitation provisions, and similar restrictions. Employers should speak with employment counsel about updating their employment agreements and workplace policies in light of these ambiguities.
Wilson Sonsini Goodrich & Rosati's employment litigation and trade secret litigation practices are actively following developments in the District of Columbia and around the country with respect to restrictive covenants. For more information, please contact Marina Tsatalis, Jason Storck, or another member of the firm's employment litigation and trade secret litigation practices.
