D.C. Council Passes Amendment to Scale Back Ban on Non-Compete Agreements

After passing one of the strictest non-compete laws in the nation, the District of Columbia Council has responded to criticisms about the bill by passing the Non-Compete Clarification Amendment Act of 2022 which significantly scales back key aspects of the non-compete ban law enacted back in 2021 but which has not yet gone into effect after the Council has delayed its enactment several times in response to feedback from employer groups.

The non-compete ban, passed by the Council in 2020 and enacted in 2021, sought to impose a near-universal ban on simultaneous and post-termination employment restrictions for employees working in D.C. Since the inception of the ban, it has been subject to much criticism and numerous extensions of its effective date. However, the Clarification Amendment, which will take effect on October 1, 2022, changes the scope of the ban from nearly all non-compete agreements to only those whose total annual compensation is less than $150,000 ($250,000 for medical specialists). Compensation is defined to include more than just salary but accounts for bonuses, commissions, overtime premiums, and vested stock as well but does not include “fringe benefits other than those paid to the employee in cash or cash equivalents.”

The Clarification Amendment will now proceed to the desk of the Mayor, where it is expected to be signed, and then will be subject to a 30-day congressional review period which likely will expire in mid-to-late November. The amendment contains a number of significant “clarifications” to the non-compete ban law and gives D.C. employers options for utilizing non-compete agreements and other policies, such as conflict of interest policies, that were set to be prohibited.

Under the revised ban, D.C. employers will still be allowed to use non-compete agreements with “highly compensated employees” defined as those whose compensation exceeds $150,000 ($250,000 for medical professionals). However, even though employers will be permitted to enter non-compete agreements with such individuals, the non-compete agreements themselves must meet certain criteria in order to be enforceable.

A non-compete agreement must specify the scope and geographic limitations of the restrictions. Post-separation restrictions must be limited in duration to no longer than 365 calendar days from the date of separation (730 calendar days for medical specialists). Additionally, employers must also provide the proposed non-compete agreement to the highly compensated employee in writing at least 14 days before the start of employment or the execution of the agreement. Moreover, employers must provide a statutorily mandated notice to highly compensated employees simultaneously with the proposed covenant not to compete.

The Clarification Amendment also redefines who is a “covered employee” (i.e. an employee to whom the non-compete ban applies). Pursuant to the amendment, the definition of “covered employee” is an employee who spends more than half of their time working in D.C. and not more than half of their time working in another jurisdiction. Covered employees also include “broadcast employees,” defined as on- or off-air creators such as an anchor, disc jockey, editor, producer, program host, reporter, or writer, regardless of whether they are highly compensated employees.

The amendment did not change the carve out for non-compete agreements entered into simultaneously with the sale of a business, meaning buyers of a business may still require sellers from engaging in a competing business. Additionally, the Clarification Amendment clarifies that employers may bar their employees from disclosing, using, selling, or accessing the employer’s confidential and proprietary information during or after employment.

When it comes to non-compete and other issues, we like to think Lubin Austermuehle is ahead of the competition all over the Chicagoland area, from Waukegan to Wheaton to Evanston and beyond. A key component of our leadership position is the fact that we don’t just listen, we hear you, as you can find out in a FREE consultation. We will discuss your legal issues and needs and our ability to meet (and exceed) your expectations. Call 833-305-4933 or contact us via our website by clicking here. We look forward to speaking with you.

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