D.C. Pulls Back on Non-Compete Restrictions, But Many Remain Nationwide

On July 12, 2022, the D.C. City Council passed a significant amendment to its ban on non-compete employment agreements.  The previous law (if ever effective) would have prevented employers from enforcing non-compete agreements that “prohibit[] the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.” The original law had little to no exceptions, thereby being one of the country’s most direct counter to non-compete agreements now common in many industries. Passage of the original law raised alarm bells as many employers worried this strong language would have stopped even the most reasonable use of non-competes, such as preventing an employee from starting a competing company while still working for the employer.

However, the amended law clarifies that employers may still limit employees’ use of proprietary information and other items covered by section 2(4) of the Uniform Trade Secrets Act. It also claws backs the blanket ban on non-competes to cover only those making less than $150,000 a year, with a higher $250,000 threshold for “medical specialists.” Of note, this amount is subject to annual increase. Even for those employees subject to a non-compete, the agreement must be; provided to the employee “[a]t least 14 days before the individual commences employment for the employer” or, “[i]f the employer already employs the highly compensated employee, at least 14 days before the employee must execute the agreement”; and it will need to include

“The functional scope of the competitive restriction including what services, roles, industry, or competing entities the employee is restricted from performing work in or on behalf of;”

“The geographical limitations of the work restriction;” and

“If the employee is not a medical specialist, a term of non-competition that does not exceed 365 calendar days from the date the employee separates from employment with the employer” or “[i]f the employee is a medical specialist, a term of non-competition that does not exceed 730 calendar days from the date the employee separates from employment with the employer.”

While D.C.’s law, if signed and not rejected by Congress, has seen some push back to the overall trend, employers with employees in California, North Dakota, and Oklahoma, should be aware that similar restrictions on non-competes remain. In other states, including Maine, Maryland, New Hampshire, Rhode Island, and Washington, there are less restrictions but still notable limits on non-competes. As a good rule of thumb, employers should utilize non-competes for their intended purpose- i.e. to prevent unfair competition resulting from “stealing” employees with key knowledge of proprietary information. The nation-wide push against these agreements clearly aims at the non-compete agreements used only to lower employees’ bargaining power by restricting their employment elsewhere.