Washington, DC’s Non-Compete Bill Revised As soon as extra | Seyfarth Shaw

The persevering with saga of Washington, DC’s expansive non-compete bill appears to be nearing its end, as a result of the DC Council these days scaled once more the initially handed “DC Ban on Non-Compete Act of 2020.” Whereas the amended laws nonetheless imposes important restrictions on non-compete agreements for staff dwelling or working primarily in DC, the newest revisions are a step away from the near-total ban on non-competes that the Council initially handed. The model new provisions go into influence on October 1, 2022, barring an unlikely veto from Congress or further revisions from the DC Council.

The Historic previous of DC’s Non-Compete Bill

We have now beforehand written about DC’s proposed non-compete bill (“the Bill”) and the numerous sorts it has taken since its introduction once more in 2019. As initially proposed, the Bill would have banned utilizing non-compete agreements for staff who labored in DC underneath a positive income threshold. Whereas readers of this weblog will know that native income thresholds for non-competes are rising widespread, the language of the Bill was concerning for only a few causes: the income threshold (on the time, $87,654) was among the many many highest throughout the nation, the income threshold was tied to the DC minimal wage (which has modified roughly as quickly as every 1.5 years so far 15 years), and the calculation of income was significantly convoluted for salaried workers. Possibly most concerning, the Bill would have banned anti-moonlighting provisions: workers underneath the income threshold could not be prohibited from working for yet another employer, even a rivalsall through the phrases of employment.

Comparatively than deal with these issues, the DC Council went a step further. As we detailed proper right here, on January 11, 2021, Foremost Muriel Bowser signed the Ban on Non-Compete Agreements Modification Act of 2020 (“the Act”), which could have been banned practically all non-compete restrictions regardless of the employee’s income stage (with a sequence of unusual carve-outs for lessons of workers like babysitters and lay workers of religious organizations). As drafted the Act would have moreover arguably utilized to an employee who carried out any work throughout the District or an employer who had any operations throughout the District, inflicting considerable concern over which workers and employers had been coated. The anti-moonlighting language throughout the distinctive Bill appeared to be clarified by the DC Council within the summertime of 2021, nevertheless the final word language of the Act and its environment friendly date had been nonetheless to be determined, owing largely to the requirement for Congressional approval of funds handed by the DC legislature.

The Non-Compete Clarification Modification Act of 2022

It now appears that DC’s statutory framework for non-compete restrictions has taken its final variety. On July 12, 2022, the DC Council handed the Non-Compete Clarification Modification Act of 2022 (“the Modification”). Whereas the Modification addresses some employer issues regarding the overbroad language of the prior variations, the model new laws will nonetheless significantly curtail utilizing non-compete agreements for employers and workers in DC The highlights of the Modification embody:

  • Comparatively than the general ban on non-competes handed in early 2021, the Modification reverts once more to barring non-competes underneath an income threshold. Moreover, comparatively than the earlier, somewhat-convoluted income calculations primarily based totally on the DC minimal wage, the Modification merely makes use of a set amount: non-competes are permitted for individuals making over $150,000 yearly (along with most any kind of compensation apart from positive non-monetary benefits) or $250,000 for “medical specialists.” This amount will enhance starting in 2014 primarily based totally on the Division of Labor’s Consumer Worth Index. There’s moreover a specific carve-out for staff working in broadcasting (except for product sales representatives).
  • Even for highly-compensated workers for whom non-competes are permissible, the model new laws imposes some strict limitations on these restrictions. The non-compete ought to component exactly what roles, industries, or competing entities the particular person can’t work in or for, and significantly describe the geographic scope of the restriction. Non-competes for qualifying workers are restricted to 1 yr (2 years for medical specialists). Employers ought to moreover current individuals with a reproduction of the settlement a minimum of 14 days sooner than the start of employment or the required date for execution of the settlement, and will current the employee with explicit uncover language advising the employee of the model new laws and its limitations.
  • In response to employer issues, the Modification removes the full ban on anti-moonlighting provisions, nevertheless nonetheless limits them to circumstances the place the pores and skin employment might result in disclosure or use of confidential information, set off a battle of curiosity, set off a “battle of dedication” (for staff in larger coaching), or affect the employer’s potential to regulate to any related authorized tips. To the extent that employers take into account any employee falls inside these exceptions, they ought to current workers with a written copy of the associated provisions by October 31, 2022, or any time the protection changes (for newly-hired workers, inside 30 days of acceptance of employment).
  • Comparatively than making use of to any employee who performs any suppliers in DC, the Modification states that it solely applies to (1) workers who spend (or for potential workers, are anticipated to spend) larger than half their time working in DC for the employer, or (2) if the employer depends in DC, workers who “recurrently” spend a “substantial amount” of time working in DC, and fewer than half their time working for the employer outdoor of DC.

The Modification moreover makes clear that non-competes throughout the context of a sale of enterprise are protected and that non-disclosure agreements designed to protect confidential and proprietary information of the employer. Whereas the Modification is silent as to non-solicit restrictions, every indication is that these are nonetheless permitted: as we well-known in prior posts, the DC Council committee suggestions significantly referenced non-solicit provisions as a permissible totally different to non-competes.

Takeaway

Assuming that the Modification passes in its current variety, DC may have taken a step once more from what would have been most likely probably the most restrictive authorized tips throughout the nation regarding non-competes. That being talked about, the Modification and the underlying DC Ban on Non-Competes Act of 2020 nonetheless present a tough statutory framework for any employer primarily based in DC or with important operations there. As detailed in our prior posts, that framework contains a refined set of record-keeping requirements and doubtlessly stiff penalties from the DC Lawyer Frequent for non-compliance, and it moreover accommodates “workplace insurance coverage insurance policies,” even unwritten ones, contained in the scope of non -compete restrictions. The laws is not retroactive nevertheless any employer with important operations in DC must take steps now to ensure compliance sooner than the October 1, 2022, environment friendly date.