The continued saga of Washington, DC’s expansive non-compete invoice seems to be nearing its finish, because the DC Council lately scaled again the initially handed “DC Ban on Non-Compete Act of 2020.” Whereas the amended legislation nonetheless imposes important restrictions on non-compete agreements for workers residing or working primarily in DC, the newest revisions are a step away from the near-total ban on non-competes that the Council initially handed. The brand new provisions go into impact on October 1, 2022, barring an unlikely veto from Congress or additional revisions from the DC Council.
The Historical past of DC’s Non-Compete Invoice
We have beforehand written about DC’s proposed non-compete invoice (“the Invoice”) and the assorted types it has taken since its introduction again in 2019. As initially proposed, the Invoice would have banned the usage of non-compete agreements for workers who labored in DC beneath a sure revenue threshold. Whereas readers of this weblog will know that native revenue thresholds for non-competes are rising widespread, the language of the Invoice was regarding for a couple of causes: the revenue threshold (on the time, $87,654) was among the many highest within the nation, the revenue threshold was tied to the DC minimal wage (which has modified roughly as soon as each 1.5 years prior to now 15 years), and the calculation of revenue was considerably convoluted for salaried staff. Maybe most regarding, the Invoice would have banned anti-moonlighting provisions: staff beneath the revenue threshold couldn’t be prohibited from working for one more employer, even a rivalsin the course of the phrases of employment.
Slightly than tackle these considerations, the DC Council went a step additional. As we detailed right here, on January 11, 2021, Main Muriel Bowser signed the Ban on Non-Compete Agreements Modification Act of 2020 (“the Act”), which might have been banned just about all non-compete restrictions whatever the worker’s revenue stage (with a sequence of wierd carve-outs for classes of employees like babysitters and lay staff of spiritual organizations). As drafted the Act would have additionally arguably utilized to an worker who carried out any work within the District or an employer who had any operations within the District, inflicting appreciable concern over which staff and employers have been coated. The anti-moonlighting language within the authentic Invoice gave the impression to be clarified by the DC Council in the summertime of 2021, however the closing language of the Act and its efficient date have been nonetheless to be decided, owing largely to the requirement for Congressional approval of payments handed by the DC legislature.
The Non-Compete Clarification Modification Act of 2022
It now seems that DC’s statutory framework for non-compete restrictions has taken its closing type. On July 12, 2022, the DC Council handed the Non-Compete Clarification Modification Act of 2022 (“the Modification”). Whereas the Modification addresses some employer considerations concerning the overbroad language of the prior variations, the brand new legislation will nonetheless considerably curtail the usage of non-compete agreements for employers and staff in DC The highlights of the Modification embrace:
- Slightly than the entire ban on non-competes handed in early 2021, the Modification reverts again to barring non-competes beneath an revenue threshold. Furthermore, slightly than the sooner, somewhat-convoluted revenue calculations primarily based on the DC minimal wage, the Modification simply makes use of a set quantity: non-competes are permitted for people making over $150,000 yearly (together with most any type of compensation besides sure non-monetary advantages) or $250,000 for “medical specialists.” This quantity will improve beginning in 2014 primarily based on the Division of Labor’s Shopper Value Index. There may be additionally a selected carve-out for workers working in broadcasting (aside from gross sales representatives).
- Even for highly-compensated staff for whom non-competes are permissible, the brand new legislation imposes some strict limitations on these restrictions. The non-compete should element precisely what roles, industries, or competing entities the person can’t work in or for, and particularly describe the geographic scope of the restriction. Non-competes for qualifying staff are restricted to 1 12 months (2 years for medical specialists). Employers should additionally present people with a replica of the settlement at the very least 14 days earlier than the beginning of employment or the required date for execution of the settlement, and should present the worker with particular discover language advising the worker of the brand new legislation and its limitations.
- In response to employer considerations, the Modification removes the complete ban on anti-moonlighting provisions, however nonetheless limits them to conditions the place the surface employment may end in disclosure or use of confidential info, trigger a battle of curiosity, trigger a “battle of dedication” (for workers in increased training), or have an effect on the employer’s capacity to adjust to any relevant legal guidelines. To the extent that employers imagine any worker falls inside these exceptions, they should present staff with a written copy of the related provisions by October 31, 2022, or any time the coverage modifications (for newly-hired staff, inside 30 days of acceptance of employment).
- Slightly than making use of to any worker who performs any companies in DC, the Modification states that it solely applies to (1) staff who spend (or for potential staff, are anticipated to spend) greater than half their time working in DC for the employer, or (2) if the employer is predicated in DC, staff who “usually” spend a “substantial quantity” of time working in DC, and less than half their time working for the employer exterior of DC.
The Modification additionally makes clear that non-competes within the context of a sale of enterprise are protected and that non-disclosure agreements designed to guard confidential and proprietary info of the employer. Whereas the Modification is silent as to non-solicit restrictions, each indication is that these are nonetheless permitted: as we famous in prior posts, the DC Council committee feedback particularly referenced non-solicit provisions as a permissible different to non-competes.
Takeaway
Assuming that the Modification passes in its present type, DC may have taken a step again from what would have been one of the restrictive legal guidelines within the nation concerning non-competes. That being stated, the Modification and the underlying DC Ban on Non-Competes Act of 2020 nonetheless current a difficult statutory framework for any employer primarily based in DC or with important operations there. As detailed in our prior posts, that framework features a difficult set of record-keeping necessities and probably stiff penalties from the DC Lawyer Basic for non-compliance, and it additionally consists of “office insurance policies,” even unwritten ones, throughout the scope of non -compete restrictions. The legislation just isn’t retroactive however any employer with important operations in DC ought to take steps now to make sure compliance earlier than the October 1, 2022, efficient date.
