Key Requirements of the Act
The act contains a number of notable requirements:
Sweeping Prohibition on Non-Compete Provisions
The act prohibits employers from requiring employees to sign agreements that contain non-compete provisions or maintaining equivalent policies. The term “non-compete provision” is defined to include a written agreement that prohibits 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.” The term “employee” includes any person “who performs work in the District on behalf of an employer and any prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the District.” The act goes beyond the reach of other restrictive non-compete statutes by virtue of invalidating agreements barring “simultaneous” competitive employment, as well as encompassing “prospective” employees.
The act excludes from the definition of “employee” volunteers, certain individuals who hold office in religious organizations, babysitters, and medical specialists. The act also does not apply to federal or District of Columbia government employers. The act does not ban non-compete provisions in the context of the sale of a business.
Employers are barred from retaliating against employees who refuse to agree to or comply with an unlawful non-compete, who ask or complain about the validity of a non-compete or policy that the employee believes to be prohibited under the act, or who requests information that the employer is required to provide under the act.
Employers Must Provide a Specific Notice to All Washington, D.C., Employees
Within 90 calendar days after the applicability date of the act, employers must provide all employees who work for the employer within the District with the following notice: “No employer operating in the District of Columbia may request or require any employee working in the District of Colombia to agree to a non-compete policy or agreement, in accordance with the Ban on Non-Compete Agreements Act of 2020.” In addition, new employees working in the District must be provided with that text within 7 calendar days of their hire date, and employees who request the statement must receive it from the employer no later than 14 days after the employer receives the written request.
Employers Are Required to Maintain Records
The act requires the mayor to issue rules to implement the act, including rules requiring employers to keep and retain records relating to compliance with the act. These rules have not yet been implemented.
Impact on Existing Agreements
There is a silver lining for District employers, however. Existing non-compete agreements are excluded from the act. The act applies only to non-compete agreements entered into on or after the applicability date of the act.
What about Confidentiality and Non-Solicitation Agreements?
Another positive that employers can take from this development is that the act specifically provides that employers may continue to restrict employees from disclosing confidential, proprietary, or sensitive information; client lists; customer lists; or trade secrets. The act is silent, however, regarding non-solicitation agreements.
The act was signed into law on March 16, 2021, but is not yet enforceable. During the District’s fiscal year 2022 budgeting process, the City Council approved funding for the act but postponed the applicability of the act until April 1, 2022, which gives the council time to consider amendments to the act. It also gives employers more time to prepare. Pursuant to the District’s funding process, there are two steps the act goes through before it becomes applicable and enforceable. First, the mayor signs both (i) the Fiscal Year 2022 Budget Support Act of 2021 (B24-0373) approved by the Council, which designates April 1, 2022, as the applicability date for the act (the mayor signed the Budget Support Act on August 23, 2021), and (ii) the Fiscal Year 2022 Local Budget Act of 2021 (B24-275) approved by the council, which allocates $105,000 to funding the act (the mayor signed the Budget Act on September 13, 2021). Second, the Local Budget Act must be approved by Congress after a 30-day congressional review period. The Local Budget Act was transmitted to Congress on September 21, 2021, and is projected to become law on November 16, 2021. It is rare for Congress to make any alterations to the District’s budgets, and for that reason, barring other roadblocks, the act likely will be funded and become applicable and enforceable on April 1, 2022. As previously noted, however, the City Council has the ability to amend the act before it becomes applicable on that date.
Future Implications for Employers
Employers should be aware of the enforcement mechanisms and penalties that they may face under the act. Penalties for violations include both administrative and civil remedies. The mayor and the attorney general for the District of Columbia may assess fines of $350 to $1,000 for each violation of the non-compete and notice requirements, and more than $1,000 for violations of the retaliation provision.
Meanwhile, aggrieved employees can file either an administrative complaint or a civil action in court, and may seek between $500 and $1,000 for each violation. Employers that attempt to enforce an agreement that is invalid under the act will be liable to the employee for at least $1,500. Fines increase with multiple violations.
In summary, the act imposes affirmative duties on employers to not only refrain from using non-compete provisions in employment contracts and policies but also to inform employees of the law. The act does not apply retroactively, but employers must cease using non-compete provisions after April 1, 2022. Employers that continue to have non-compete provisions in employment contracts and policies after April 1, 2022, or that neglect to inform employees of the law may face penalties for statutory violations.