Articles

DC Non-Compete Law Becomes Effective October 1, 2022

Author: Andrew H. Milne Date: 09/21/2022

Categories: Corporate and Business Law, Employment Law & Litigation, Uncategorized

Image of a person holding a piece of paper that says "Non-compete agreement".

The District of Columbia’s new law banning most non-compete agreements becomes effective on October 1, 2022. The new law concludes a lengthy process in which DC has adopted laws to regulate this area, and then amended them before they went into effect. The current version of the law addresses some problems in the prior versions, but still presents significant limitations on both agreements and workplace policies that restrict employees from competing with their employers.

The current version of the law is called the Noncompete Clarification Amendment Act of 2022. Below, we summarize key features of the law:

  1. Effective Date:  Beginning October 1, 2022, employers may not require employees to sign any agreement containing a non-compete provision or to comply with any workplace policy containing such a provision. However, non-compete provisions in agreements signed before October 1, 2022 should not be affected.
  2. Non-Compete Provision. This is a defined term in the law, and it is unchanged in the new version. It covers any “provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business.”  The definition remains very broad.
  3. Covered Employees. The most recent version of the law provides some clarification on how it applies to employees who work a portion of their time in DC and a portion of their time elsewhere. In general terms, the law protects employees who spend more than one-half of their work time for their employer in DC or who regularly spend a substantial amount of their work time for the employer in DC and do not spend more than one-half of their work time for the employer in another jurisdiction.
  4. Exceptions.  Because the definition of “non-compete provision” is very broad, exceptions have been established in the law for certain kinds of provisions, including certain confidentiality provisions, certain restrictions on employment that would present a conflict of interests, and many long-term incentive arrangements.  For each of these exceptions, employers should review their current provisions against the text of the law to determine if the exception applies.  These exceptions all were introduced or revised in the most recent version of the law.
  5. Permitted Non-Competes.  The law permits non-compete agreements to be used with certain employees.  The most significant exceptions are for “highly compensated employees” (which is new) and “medical specialists.”  These exceptions are available only if annual income thresholds are met:  $150,000 for highly compensated employees and $250,000 for medical specialists, and those thresholds will be adjusted in the future to account for inflation. There is also an exception for certain employees working in broadcast industries, which does not have an income threshold. 
  6. New Restrictions and Requirements.  The law imposes new limitations and requirements for employers to follow, which include:
    • Requirements for non-compete agreements with highly compensated employees and medical specialists, including:
      • providing the employee with a copy of the agreement at least 14 days before it is signed
      • including a specific notice of rights in the agreement
      • specific maximum post-employment durations
      • requirements to specify both geographic area and details regarding the “functional scope” of restricted activities
    • A requirement that employees receive written copies of workplace policies containing non-compete provisions, which must be done (i) within 30 days after the employee accepts employment, (ii) within 30 days after October 1, 2022, or (iii) any time the policy changes.

The new law remains both burdensome and complex. Because the new law affects workplace policies as well as agreements, many employers that do not use noncompete agreements will be affected by the law. Employers using either agreements or policies that contain non-compete provisions with their DC employees should review their policies and practices to determine whether any changes are needed or communications with their DC employees will be required. 

Andrew Milne advises businesses and their owners on employment law and business law matters. He can be reached at 301.251.1180 or amilne@mcmillanmetro.com.