Mayor Muriel Bowser Signed the Ban on Noncompete Agreements Amendment Act of 2020

Update: The law will now be published in the District of Columbia Register and subject to a 30 legislative day congressional review period, after which it is expected to take effect. Once the bill becomes law, the District of Columbia will join California and Montana as one of the few jurisdictions with near-total bans on noncompete agreements. Employers with workers in the District of Columbia should immediately review and revise their existing employment agreements and policies as necessary to ensure compliance with this new law.

On December 15, 2020, the Council of the District of Columbia passed a bill that, if enacted into law, would largely ban employers from requiring their D.C. employees to sign noncompete agreements. If the bill is not vetoed by the Mayor or blocked by Congress, D.C. will join California as one of the few jurisdictions in the United States with near-total prohibitions on the use of noncompete agreements in employment.

Specifically, the bill states that no employer may require or request that an employee who performs work in D.C., or a prospective employee who an employer reasonably expects will perform work in D.C., sign an agreement that includes a noncompete provision. The bill also states that any noncompete entered into after the effective date of the bill is automatically void.

The bill defines a noncompete provision as any part of a written agreement between an employer and an employee that prohibits the employee from being employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business. The definition includes not only noncompete provisions that restrict an employee’s ability to work after they leave their employer, but also provisions that restrict employees from obtaining other employment during their tenure with their current employer. In addition to the ban on noncompete provisions in written agreements, the bill would also prohibit workplace policies that have the same effect.

The bill expressly exempts “medical specialists”, which the bill defines as any individual who performs work in D.C. on behalf of an employer engaged primarily in the delivery of medical services, and who (1) holds a license to practice medicine, (2) is a physician, (3) has completed a medical residency, and (4) earns at least $250,000 in compensation per year. Medical specialists must be given at least fourteen days to consider any noncompete their employer asks them to sign.

The bill does not ban provisions that prevent an employee from disclosing their employer’s confidential, proprietary, or sensitive information, client or customer lists, or trade secrets, meaning that D.C. employers will remain able to include otherwise lawful non-disclosure provisions in their employment agreements. And, the bill does not ban noncompete agreements entered into in conjunction with the sale of a business, which many jurisdictions treat more leniently than noncompete agreements entered into in the course of an employment relationship.

Notably, the bill does not specifically address agreements prohibiting employees from soliciting their former employer’s customers or employees. Although some courts have taken the position that a non-solicitation of customers covenant is akin to a noncompete agreement, especially if the new employer is in the same business as the former employer, a committee report prepared by the Council of the District of Columbia discussing the bill states that non-solicitation agreements may be used as an alternative to noncompete agreements. Additionally, the specificity of this bill as to what does and does not constitute a noncompete provision would argue against a broader application to cover non-solicitation provisions.

In addition to the ban on noncompete agreements, the bill also states that covered employers are prohibited from retaliating against employees for (1) refusing to agree to sign a noncompete; (2) asking or complaining about the existence, applicability, or validity of a noncompete provision or workplace policy the employee reasonably believes is prohibited under the bill; or (3) requesting from the employer the disclosure language described above. As defined in the bill, retaliation includes taking any adverse action against the employee, specifically including any threat, verbal warning, written warning, reduction of work hours, suspension, or termination.

If the bill takes effect, employers must also provide employees with a written notice containing the following language:

“No employer operating in the District of Columbia may request or require any employee working in the District of Columbia to agree to a noncompete policy or agreement, in accordance with the Ban on Noncompete Agreements Amendment Act of 2020.”

This written disclosure must be provided to employees no later than 90 days after the bill’s effective date, within seven days after a new employee is hired, and within fourteen days of any employee request.

It is unclear whether or when this bill will become law. The next step is for it to be enrolled by the Council Secretary and sent to Mayor Muriel Bowser. At that point, the Mayor will have ten days to sign the bill into law, veto it, or let the bill become law without signature. Although Mayor Bowser has been generally critical of legislation perceived as anti-business, she has not issued any statements as to how she intends to proceed here. If Mayor Bowser signs the bill or lets it become law without signature, the bill will then go to Congress. Unless Congress issues a joint resolution disapproving of the bill within thirty days, it will become law.

Takeaways

This D.C. noncompete bill is consistent with a trend across the country to attempt to limit or eliminate the use of noncompete covenants. While most efforts focus on restrictions as to lower-wage workers, pre-employment notice, or compensation for some portion of the restricted period, this D.C. bill seeks a complete elimination as to employment-based noncompetes. Notably, however, the bill specifically recognizes the appropriateness of safeguarding a company’s business and trade secret information. Toward that end, and as noncompete provisions are being subject to higher scrutiny, it is important for companies to ensure that their confidential and trade secret information is protected and subject to a rigorous protection program so that relief is available through other mechanisms when and as needed. For instance, for those jurisdictions that recognize the inevitable disclosure doctrine (or, like D.C., have yet to decline to recognize the doctrine) an employee may be enjoined from working for a competitor if it can be demonstrated that the new employment will inevitably lead them to rely on their former employer’s trade secrets. Similarly, for example, employees’ common law duties of loyalty apply and survive the termination of employment with respect to their obligations regarding their employer’s information. These confidential information and trade secret programs should be designed and implemented to minimize and mitigate the risks previously negated by enforceable noncompetes.