In what was a welcome source of news for Washington D.C. based employers on July 12, 2022, the District of Columbia presented and quickly passed the Non-Compete Clarification Amendment Act of 2022 (the Amended Act), which according to litigators fully revises the ban on employee non-compete provisions that failed to be implemented last year. Set to go into effect in October 2022, this new legislation is not retroactive, meaning it won’t alter the position of pre-existing non-compete agreements with employees.
In 2021, the District enacted an employment statute that would eventually put a ban on any type of employee non-compete agreement as well as other employment policies such as restricting an employee from outsourcing their time to other companies. Due to rising concerns within the D.C. legal and business communities, the 2021 law was placed on the backburner and never came to fruition. With the Non-Compete Clarification Amendment Act newly amended, many are left wondering how it will reshape the legal landscape of employment in Washington D.C. in years to come.
As of October 1, 2022, this new set of employment legislation will apply to all employers, current or prospective, "operating in the District in relation to" any non-governmental employee. Additionally, non-compete requirements also apply to D.C. employers seeking to hire out-of-state remote workers and vice versa, but do not apply to business related partnerships. Despite D.C. having some of the strictest non-compete employment laws in the country, legal experts claim the Amended Act is significantly less stringent than the failed 2021 ban.
The Amended Act will prohibit all non-compete provisions, which are any agreements or policies that could impede an individual’s ability to work for another employer or for themselves either during or after employment, unless the non-compete involves a highly compensated employee. According to the legislation, highly compensated employees are those who earn between $150,000 and $250,000 per year, a salary threshold that will be adjusted after factoring in economic inflation by 2024. When a highly compensated employee is asked to enter into a non-compete agreement, employers are required to give the employee notice.
If an employee believes their employer violated the newly passed requirements of the Amended Act, they can either file an administrative complaint or file legal claims and sue them in federal court. Administrative penalties currently range anywhere from $350 to $1,000 per violation, depending on the severity of the violation as well as inflation at the time.
Going forward under this amended legislation, D.C. based employers should be mindful of their options and consider other protective measures for their businesses, apart from a non-compete. Viable options for employers include strong emphasis on company confidentiality and employee training on confidentiality awareness, intellectual property provisions, data and cybersecurity privacy policies and thorough employee offboarding procedures. D.C. based employers should take stock of their current compensation structure to ensure all non-competes are removed before further amendments are applied to the already updated legislation.
