Washington, D.C., Council Delays Applicability Date of Noncompete Ban Until October 2022

The Nature of the Ban

The Act broadly curbs the use of noncompete provisions in employment contracts or employer policies by employers who operate in the District of Columbia (the District). Employers should be aware of the following:

• Which employees are protected? The Act applies to any person who performs work in the District on behalf of an employer. The following individuals are not protected under the Act: (i) unpaid volunteers for educational, charitable, religious, or nonprofit organizations, (ii) lay members of religious organizations, (iii) “casual” babysitters, and (iv) certain medical specialists.
• Who will qualify as an “employer” under the Act? “Employer” is broadly defined to encompass any enterprise of any size operating in the District. The Act also excludes the District government and United States government from the definition of “Employer.”
• What will the ban prohibit? The Act bars employers from enacting policies or requiring or requesting that employees sign agreements prohibiting them from being simultaneously or subsequently employed by another, performing work or providing services for another, or operating the employee’s own business. The Act, thus, renders void and unenforceable any noncompete provision entered into on or after the Act’s applicability date.
• Will the ban apply to noncompetes entered into before the Act becomes effective? No. The Act is not retroactive, so noncompetes entered prior to the applicability date (including those entered into right now) may still be enforceable.
• Will the Act prohibit noncompetes entered into in the context of the sale of a business? No. The Act importantly does not prohibit otherwise lawful noncompete provisions contained in or executed contemporaneously with agreements between sellers and buyers of a business wherein the seller agrees not to compete with the buyer’s business.
• Will the ban prohibit nondisclosure agreements? No. The Act does not extend to otherwise lawful provisions that restrict employees from disclosing an employer’s confidential, proprietary, or sensitive information, client or customer lists, or trade secrets. But the Act as currently drafted could potentially be ambiguous regarding provisions restricting the use of such information.
• Will employers be able to fire employees who fail to sign noncompetition agreements? No. The Act has strong antiretaliation provisions. The Act prohibits employers from retaliating or threatening to retaliate against employees who refuse to sign or comply with noncompete agreements or policies or who report the existence of such agreements or policies to the government.
• Will employers need to give notice of the Act to their employees? Yes. The Act requires employers to provide notice of the Act to employees within (a) 90 calendar days after the Act’s applicability date, (b) seven calendar days after an employee joins the employer, and (c) 14 calendar days after an employer receives a written request for notice from an employee. Moreover, the Act requires the Mayor to issue rules implementing the Act, including rules that require the preservation and retention of records related to compliance with the Act.
• What are the potential penalties for violating the Act?
  • The Act empowers the Mayor to assess administrative penalties ranging from $350 to $1,000 for each violation of the Act, subject to certain notice requirements.
  • The Act also permits employees to file administrative complaints with the Mayor or civil actions in a court of competent jurisdiction to pursue relief for any violations. Depending on which part of the Act is violated, employers can be held liable for amounts ranging from $500 to $2,500 for each violation to each affected employee, with enhanced damages for subsequent violations that are no less than $3,000 per affected employee.

Next steps

As stated, the Council’s Committee on Labor and Workforce Development (the Committee) is already considering legislation to amend the Act. The Non-Compete Conflict of Interest Clarification Amendment of 2022 (the Amendment) was introduced on May 21, 2021. Among other things, the Amendment is intended to clarify that (a) the Act does not prohibit conflict-of-interest provisions in workplace policies or employment agreements and (b) employers may continue to bar employees’ use of confidential, proprietary, or sensitive information, client or customer lists, or trade secrets during or after an employee’s employment. The Committee held a hearing on the Amendment on July 14, 2021, and the Committee has been consulting with the business community in preparing to mark up the Amendment.

While it appears that the Act will not begin to apply until October 1, 2022, at the earliest, employers should nonetheless take steps as soon as possible to prepare to comply with the Act and any amendments thereto. A few suggested preparatory steps including the following:

• Identify any current or prospective employees or independent contractors to whom the Act may apply.
• Revise any employer policies or form agreements implicated by the Act so that they comply with the Act’s requirements.
• Prepare form notices that comport with the Act’s notice provisions and can be quickly disseminated to affected employees before the Act’s notice deadlines.
• Plan to implement (i) new antiretaliation policies as required under the Act and (ii) new record preservation and retention policies to document compliance with the Act, particularly its notice provisions.
• Consider retaining outside counsel who can advise and review your efforts to implement the steps enumerated above and discuss alternative options to protect your business’s goodwill, trade secrets, and confidential or proprietary information.