Introduction and Background
Washington, D.C.’s new non-compete law, the “Non-Compete Clarification Amendment Act of 2022” (the “Amended Act”) went into effect last month. As of October 1, 2022, employers operating in the District of Columbia are prohibited from using most non-compete provisions, with key exceptions. The Amendment Act is not retroactive: non-competition agreements predating October 1, 2022, are not affected, although employers may still want to review such non-compete provisions with their legal counsel.
The new legislation represents a toned-down version of the “Ban on Non-Compete Agreements Amendment Act of 2020,” an outright ban on non-competes covering nearly all D.C. employees, passed by the city council in December 2020. The 2020 ban, which became law in January 2021, would have constituted one of the most employee-friendly non-compete laws in the country. However, significant backlash from D.C. business interests effectively pressured the city council to delay its implementation and draft a more modest version of the law. On June 12, 2022, the council passed the Amended Act, which includes important employer-friendly exemptions that had been requested by the D.C. business lobby.
Covered and Exempted Employees
All current and prospective non-governmental employers in D.C. are prohibited from using non-compete language in agreements with their “covered employees.” Covered employees are defined as workers who do not qualify as “highly compensated” (discussed below) and either spend more than 50% of their work time for their employer in the District or spend a “substantial amount” of their work time in D.C. and not more than 50% in another jurisdiction. Both remote and in-person employees qualify, as well as newly hired employees who have yet to begin working, provided an employer can reasonably anticipate that they will spend most of their work time in D.C.
Employers may use non-compete restrictions for their “highly compensated” employees, defined as those whose total annual compensation, including wages or salaries as well as bonuses, commissions, vested stock, and overtime pay, exceeds $150,000. For medical specialists, the minimum qualifying annual compensation is $250,000. However, non-competes for these employees must clearly stipulate any geographic limitations and the length of time covered after separation is capped at 1 year (2 years for medical specialists). “Broadcast employees” do not qualify as highly compensated, regardless of what they earn and are defined by the Amended Act as any “on or off-air creator (such as an anchor, disc jockey, editor, producer, program host, reporter, or writer)” working at any D.C. station or network that provides broadcast services. Minimum qualifying annual compensation values will be adjusted based on the local Consumer Price Index beginning on January 1, 2024.
The new law also includes an anti-moonlighting provision allowing employers to restrict employees who also work simultaneous, separate employment. Employers may use non-compete provisions for such simultaneous employment when they “reasonably believe” that their employee’s second job would result in a conflict of interest, disclosure of confidential information, or the breach of industry rules or local or federal laws and regulations. The legislation also permits non-competition provisions in the context of long-term incentive agreements in which employers award bonuses, equity, and/or stock as performance-based rewards.
In some professions, governing associations already bar the use of non-competes. For instance, the ethics rules of the American Bar Association (ABA) prohibit non-competition clauses in agreements among attorneys.