Washington, DC Scales Again Ban on Non-Competes

Washington, DC employers is not going to have to scrap all their non-compete agreements in any case. On July 12, 2022, the DC Council (the “Council”) handed the Non-Compete Clarification Modification Act of 2022 (B24-0256) (the “Modification”), which amongst different issues, tempers the District’s near-universal ban on non-compete provisions to allow restrictions for extremely compensated workers. For additional evaluation on the unique DC Ban on Non-Compete Act, please see our earlier articles right here and right here.

The Council delayed the preliminary ban a number of instances in response to suggestions from employer teams. Nonetheless, barring an unlikely veto or Congressional motion throughout the necessary overview interval, the amended ban will take impact as of October 1, 2022. We element the important thing revisions to the ban beneath.

Non-Competes Permitted for Extremely Compensated Staff and Medical Specialists

Along with allowing non-compete agreements with medical specialists making greater than $250,000 yearly, the revised ban permits DC employers to enter non-compete agreements with nearly any worker whose whole compensation is or is fairly anticipated to be greater than $150,000 per 12 months. The Modification clarifies that “compensation” consists of bonuses, commissions, time beyond regulation premiums, vested inventory, and different funds supplied on a daily or irregular foundation; nevertheless, fringe advantages is not going to depend towards the brink except they’re paid in money or money equivalents. Starting January 1, 2024, the brink will improve in proportion to the annual common improve within the US Division of Labor’s Shopper Value Index for All City Shoppers within the Washington Metropolitan Statistical Space for the earlier calendar 12 months adjusted to the closest complete greenback.

A final-minute industry-specific change carved out an exception that prohibits non-competes for any workers, aside from gross sales representatives, who work for a tv, radio, cable, satellite tv for pc, or different broadcasting station or community – no matter whole compensation.

Necessities for Non-Competes with Extremely Compensated Staff

The Modification gives sure necessities for non-compete agreements between an employer and extremely compensated worker executed on or after October 1, 2022. To be legitimate and enforceable, any such settlement should:

  • Specify the purposeful scope of the restriction, together with what providers, roles, {industry}, or competing entities the worker is restricted from performing work in or on behalf of;
  • Describe the geographical limitations of the work restriction; and
  • Restrict the length of the restriction to not than 365 calendar days from the date of separation (730 calendar days for medical specialists).

Employers should additionally present the non-compete to the extremely compensated worker in writing a minimum of 14 days earlier than the beginning of employment or the execution of the settlement.

Furthermore, like when proposing a non-compete with a medical specialist, employers should present the next discover to extremely compensated workers concurrently with the proposed non-compete provision:

The District of Columbia Ban on Non-Compete Agreements Modification Act of 2020 limits the usage of non-compete agreements. It permits employers to request non-compete agreements from “extremely compensated workers” beneath sure situations. [Name of employer] has decided that you’re a extremely compensated worker. For extra details about the Ban on Non-Compete Agreements Modification Act of 2020, contact the District of Columbia Division of Employment Companies (DOES).

Restrictions Solely Apply to Staff Who Principally Work in DC

The unique ban utilized to agreements with any worker who performs work or potential worker whom the employer moderately anticipates will carry out work in Washington, DC The Modification clarifies that the ban solely covers workers and potential workers if (i) they spend or are moderately anticipated to spend greater than 50% of their work time working in DC for the employer, or (ii) their employer is predicated in DC they usually “recurrently” spend a “substantial quantity” of labor time in DC and less than 50% of their work time for that employer working in one other jurisdiction.

Sale of Enterprise Exception

The Modification preserves the carve out for non-compete agreements entered into concurrently with the sale of a enterprise. Which means that a purchaser of a enterprise should insist that the vendor chorus from competing with the client.

Continued Safety of Confidential and Proprietary Data

The Modification additionally clarifies that employers might bar their workers from disclosing, utilizing, promoting, or accessing the employer’s confidential and proprietary info throughout or after employment, and excludes in any other case lawful “long run incentives” from the definition of “non-compete provision,” akin to bonuses, fairness compensation, and different efficiency pushed incentives for particular person or company achievements sometimes earned over multiple 12 months

Moonlighting Tire Modifications

In a welcome change from the unique whole ban, the Modification permits anti-moonlighting provisions if the employer moderately believes the surface employment might (i) outcome within the disclosure or use of the employer’s proprietary info; (ii) trigger a battle of curiosity; (iii) represent a “battle of dedication” for an worker of a better training establishment; or (iv) impair the employer’s capability to adjust to federal or District legal guidelines or one other contract.

However, employers with office insurance policies that embrace a number of of those exceptions should present the worker with a written copy of the provisions (i) by Oct. 31, 2022; (ii) or inside 30 days of the worker’s acceptance of employment; and (iii) any time the coverage modifications.

Making ready for October 2022

Absent surprising opposition from the Mayor or Congress, we count on the amended ban to take impact on October 1, 2022. Employers working in Washington, DC ought to overview their customary employment agreements and worker insurance policies and take away all non-compete provisions that might have an effect on workers making lower than $150,000 yearly and appropriately deal with any moonlighting restrictions to make them in line with the amended legislation Furthermore, as we beforehand beneficial, DC employers who’re contemplating getting into non-compete agreements with new hires or workers who don’t meet the extremely compensated worker threshold, ought to promptly accomplish that, in order that the agreements stay enforceable after the Act takes impact.

Please contact one of many authors or one other EBG lawyer for help with acceptable restrictive covenants beneath the circumstances.