Stephanie Ferguson Melhorn
Senior Director, Workforce & International Labor Policy, U.S. Chamber of Commerce
Published
August 23, 2022
Over the last two years, the Council of the District of Columbia has postponed and revised the Ban on Non-Compete Agreement Act of 2020—a law that was set to widely prohibit employers from imposing non-compete agreements onto employees. The bill was signed into law in January 2021 and scheduled to be enforceable on October 1, 2021. After hearing concerns about the broad scope of the bill, the sponsor, Councilmember Elisa Silverman introduced multiple amendments to the legislation, and enforcement of the ban was pushed back to April 2022 and again to October 2022.
The original ban on non-compete agreements applied to any employer operating in the District and any employee working in the District. The law prohibited employers from restricting employees from being simultaneously or subsequently employed by another employer. There were only a few exceptions. The ban on non-competes did not apply to medical specialists earning more than $250,000 annually, religious officials, unpaid volunteers, or babysitters. The District of Columbia and the U.S. government were also excluded from applicability. Finally, the bill did carve out an exception that allowed the use of non-compete agreements between a buyer and seller of a business.
The law would have greatly restricted business’s ability to protect its investments and protectable information.
The Non-Compete Clarification Amendment Act of 2022 was then passed by the council on July 12, 2022, and was signed by Mayor Bowser shortly thereafter. The amending legislation significantly limits the original ban’s reach.
First, legislation now only applies to employees who spend most of their working time in D.C. Specifically, the language defines “covered employees” as those who will spend most of their time working in D.C. or employees who will spend substantial time working in D.C. but not more than 50% of their time working in another jurisdiction.
Second, the Amendment still carves out exceptions for medical specialists earning more than $250,000 annually and babysitters. However, religious officials and unpaid volunteers are no longer excluded.
Third, the law now excludes “highly compensated employees” from the non-compete ban. The law defines highly compensated employees as those who earn $150,000 or more annually and compensation as “all monetary remuneration” including bonuses, commissions, overtime pay, and vested stocks. Starting January 2024, the minimum qualifying annual compensation threshold will be adjusted to account for annual average wage increases.
Finally, the Amendment narrowly defines what a non-compete is and isn’t. To protect business’s sensitive and proprietary information, the law explicitly excludes certain lawful provisions from the definition of a non-compete provision. These provisions include employer-employee contracts that prohibit an employee from “disclosing, using, selling, or accessing” confidential or proprietary employer information as well as contracts that prohibit an employee from earning money or a thing of value from a person other than the employer – if such work would result in the employer’s sensitive or proprietary information being disclosed or present a conflict of interest.
The Amendment greatly improves upon the original bill, ensuring that D.C. employers can protect their investments and sensitive information without restricting simultaneous or post-employment job opportunities for non-highly compensated employees. D.C.’s well-balanced approach should serve as a model for state and national policy makers who are considering making changes to current laws surrounding non-compete agreements.
The ban on non-competes will become enforceable on October 1, 2022. Employers with D.C. employees should closely review their non-compete policies to maintain compliance with the law.
About the authors
Stephanie Ferguson Melhorn
Stephanie Ferguson Melhorn is the Senior Director of Workforce & International Labor Policy. Her work on the labor shortage has been cited in the Wall Street Journal, Washington Post, and Associated Press.
