Non-competes severely limit worker mobility, jeopardize employees’ ability to earn a living, and restrict employers from hiring new talent. As a result, states across the country have started to regulate non-competes more heavily. For its part, the District of Columbia recently passed the Non-Compete Clarification Amendment Act of 2022, which limits when a D.C. employer may propose a non-compete. If you work in D.C. and signed a non-compete on or after October 1, 2022, it may be void.

What is a non-compete?

A non-competition clause, commonly referred to as a “non-compete,” prohibits an employee from competing with her employer after her employment ends. Typically, a non-compete restricts an employee from engaging in certain activities, defined as “competition.” Non-competes also define a territory and period of time in which employees may not engage in competition.

Employees often enter into non-competes during the on-boarding process or mid-employment. If you wonder whether you signed a non-compete, check your employment agreement, offer letter, and other on-boarding documents, as well as paperwork related to your bonuses and stock awards. If you have already left the company, your severance agreement could include a new or extended non-compete.

Non-competes severely limit worker mobility and force employees to remain in jobs with poor working conditions. Indeed, if an employee obtains new employment in violation of a non-compete, her former employer could sue her for breach of contract. Depending on the circumstances, the former employer could also go after the new employer for interfering with the non-compete.

Because the courts generally enforce non-competes, state legislatures have taken action to limit their use.

Does D.C. allow non-competes?

Consistent with the national trend, the District of Columbia Council passed the Ban on Non-Compete Agreements Amendment Act of 2020 (“2020 Act”). As originally drafted, the 2020 Act would have imposed one of the broadest non-compete bans in the country. However, before the 2020 Act went into effect, and in response to pressure from D.C. business interests, the Council passed an amended version of the Act. The Non-Compete Clarification Amendment Act of 2022 (“D.C. Non-Compete Act”), D.C. Code § 32-581.01 et seq., went into effect on October 1, 2022, and significantly watered down the protections in the 2020 Act.

The D.C. Non-Compete Act prohibits an employer from requesting that a “covered employee” agree to, or comply with, a non-compete provision. If a non-compete violates the D.C. Non-Compete Act and was entered into on or after October 1, 2022, it is void as a matter of law and unenforceable.

Further, the D.C. Non-Compete Act bars employers from retaliating against a covered employee because she refuses to sign or comply with an illegal non-compete, or requests a copy of it. It also prohibits retaliation against an employee who asks about, or objects to, a non-compete, which she reasonably believes violates the D.C. Non-Compete Act.

Which employees does the D.C. Non-Compete Act cover?

To be covered by the D.C. Non-Compete Act, an employee must: (1) not be highly compensated; (2) spend the required time working in D.C.; and (3) not fall into any of the exceptions.

1. Individuals who are not “highly compensated.”

The D.C. Non-Compete Act protects employees who are not “highly compensated.” This includes employees who: (1) earn less than $150,000 per year; or (2) earn less than $250,000 per year if they are “medical specialists.” A “medical specialist” is a physician licensed to practice medicine, who has completed a medical residency and is engaged primarily to deliver medical services.

Notably, the D.C. Non-Compete Act covers all broadcast employees, regardless of salary, if they spend the requisite time working in D.C. and do not fall into any of the exceptions. A “broadcast employee” is “an on- or off-air creator (such as an anchor, disc jockey, editor, producer, program host, reporter, or writer) of a legal entity that owns or operates one or more of the following: (A) A television station or network; (B) A radio station or network; (C) A cable station or network; (D) Satellite-based services similar to a broadcast station or network; or (E) Any other entity that provides broadcasting services such as news, weather, traffic, sports, or entertainment programming.”

The monetary thresholds for “highly compensated” employees will increase on January 1, 2024, and at the start of each subsequent calendar year.

“Compensation” under the D.C. Non-Compete Act includes “all monetary remuneration an employer may pay or promise.” For example, compensation includes hourly wages, salary, bonuses, cash incentives, commissions, overtime pay, vested stock, and restricted stock units. It does not include fringe benefits, except those paid in cash or a cash equivalent.

2. Work in D.C.

Moreover, an employee who already started work must spend more than half of her work time in D.C. Otherwise, the law will cover her if she spends a substantial amount of time working in D.C. for a D.C.-based employer (but not more than half her time working in another jurisdiction, which would disqualify her from coverage).

Similarly, a new employee who has not yet started working for her employer qualifies as a “covered employee” if the employer anticipates that the employee will fall into one of these two categories.

3. Exclusions from the definition of “covered employees.”

Importantly, “covered employees” do not include highly compensated individuals, casual babysitters, partners in partnerships, or D.C. or federal government employees. Therefore, employers may require workers who fall into these categories to sign non-competes.

Restrictions on non-competes for highly compensated individuals.

Even if a highly compensated individual has a non-compete, certain restrictions still apply.

First, the agreement must expressly state the scope of the restriction. It must spell out the “services, roles, industry, or competing entities the employee is restricted from performing work in or on behalf of.” Second, the agreement must set forth the geographical scope and duration of the non-compete. For most highly compensated individuals, the duration of the non-compete may not exceed one year from the separation date. For medical specialists, the non-compete may not exceed two years.

Additional exceptions.

Further, if an individual is a “covered employee,” D.C. law still permits non-competes in certain circumstances. For example, the seller of a business may agree not to compete with the new buyer as part of the sale. D.C. law also permits non-competes in long-term incentive agreements.

D.C. permits restrictions on the use and disclosure of confidential information.

Under the D.C. Non-Compete Act, employers may prohibit employees from disclosing, using, selling, or accessing an employer’s confidential or proprietary information. An employer also may ban an employee from moonlighting, if the employer reasonably believes that a second job will result in the employee’s use or disclosure of confidential information, create a conflict of interest or commitment, or violate D.C. or federal law.

Additional considerations.

Attorneys.

The D.C. Non-Compete Act does not address attorneys. However, D.C. Rule of Professional Conduct 5.6(a) limits an attorney’s ability to request or accept a non-compete agreement. Specifically, Rule 5.6(a) provides that a D.C. lawyer may not offer or make “[a] partnership, shareholders, operating, employment, or other similar type of agreement that restricts the rights of a lawyer to practice after termination of the relationship[.]” Comment 1 to Rule 5.6(a) further explains that non-competes limiting an attorney’s ability to practice after she leaves a firm “not only limits [her] professional autonomy but also limits the freedom of clients to choose a lawyer.”

Federal Trade Commission’s proposed rule.

On January 5, 2023, the Federal Trade Commission (“FTC”) proposed a broad rule that would prohibit an employer from entering, attempting to enter, or maintaining a non-compete clause with a worker. It also would bar an employer from telling a worker that she is bound by a non-compete clause when the employer has no good-faith basis for believing an enforceable non-compete exists. If passed, the rule will require employers to rescind pre-existing non-competes within 180 days from the passage of the final rule.

The comment period on the FTC’s proposed rule closed on April 19, 2023. The proposed rule has faced significant political and legal pushback from the business community. Indeed, during the comment period the FTC received nearly 25,000 comments on the proposed rule.

Non-solicitation clauses.

The D.C. Non-Compete Act defines a “non-compete provision” as “a provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business.” Arguably, this definition could be interpreted as barring an employee from performing work for a former employer’s customers.

However, the D.C. Non-Compete Act does not specifically address whether non-solicitation clauses—provisions that prevent an employee from encouraging other employees and/or clients to leave an employer —are enforceable against covered employees.

Of note, a June 2022 report issued by the D.C. Council’s Committee on Labor and Workforce Development suggested that D.C. legislators did not intend for the D.C. Non-Compete Act to cover non-solicitation clauses. The report stated: “This committee has pointed out that non-solicitation and non-disclosure agreements are better suited and narrowly tailored to protecting trade secrets and other confidential information than non-compete agreements.” Therefore, it remains unclear whether the D.C. Non-Compete Act applies to non-solicitation clauses. Ultimately, the D.C. courts will likely resolve this issue.

Contact us.

Questions about a non-compete may arise at various stages of your employment, including during your on-boarding process when your employer asks you to sign a non-compete, when you receive long-term incentives, during your separation, and during your job search.

If you have questions about a non-compete agreement or need help negotiating one, please submit a request for a legal consultation. We would be happy to speak with you about your non-compete, help you understand your obligations and rights, and, if appropriate, help you negotiate narrower terms.

This blog post has been prepared for informational purposes only. This blog post is not intended, and should not be construed, as legal advice. The information contained in this blog post is not intended to create an attorney-client relationship, and the receipt of this information does not constitute attorney-client privileged legal advice.