D.C. Eases Off Its Proposed Non-Compete Ban

This month, the D.C. Council passed the Non-Compete Conflict of Interest Clarification Amendment Act of 2021, which narrowed the scope of the very broad ban on non-competition agreements pursuant to the Ban on Non-Compete Agreements Amendment Act of 2020 (which we previously discussed here and here).  In an apparent recognition of the overbreadth of the law, the D.C. Council meaningfully narrowed the ban on non-competes in the following ways:

Definition of Covered Employee Narrowed. The definition of “Employee” has been narrowed in several respects.  First, the definition now applies only to employees who perform 50% or more of their work in D.C. or who have D.C. as a base, perform substantial work in D.C., and do not perform 50% or more of their duties in another jurisdiction.

Second, the new law creates a definition for “highly compensated employees” who are excluded from coverage unless they fall into the category of “broadcast employees.”  Non-competition agreements are generally permitted for highly compensated employees, employees earning $150,000 or more ($250,000 for medical professionals), an amount that will be adjusted annually based on the Consumer Pricing Index.  For highly compensated employees, a non-competition agreement must be provided at least 14 days prior to the commencement of employment and must set forth the scope of activity restricted, the geographic scope, and the temporal scope must be limited to 365 days (except that a 730-day restriction is permitted for medical professionals).

Scope of Prohibition Narrowed. The definition of non-compete agreement, which was particularly problematic under the original law, and seemed to abrogate the common law duty of loyalty, has been appropriately narrowed.  Under the Clarification Amendment Act, the definition no longer includes agreements that prohibit employees from accepting work that would reasonably require the employee to (i) disclose or use an employer’s confidential information; (ii) create a conflict of interest; (iii) interfere with the duties of an employee of a higher education institution; or (iv) impair the employer’s ability to comply with D.C. or federal law, a contract, or a grant agreement.

Also carved out are agreements that contain long term incentives, a term that is broadly defined.

Effective Date and Applicability Date. The bill has been transmitted to the Mayor with a response deadline of August 4, 2022.  Assuming the Mayor signs the bill into law, it will become effective following a 30-day Congressional review period and publication in the District of Columbia Register.  The bill further states that it shall become applicable on October 1, 2022, meaning that it does not resolve the confusion that existed in the original law between the effective date and the applicability date.