Employment Law Alert – D.C. Clamps Down on Non-Compete Provisions and Practices
By Neil S. Talegaonkar, Labor & Employment
On January 11, 2021, Muriel Bowser, Mayor of the District of Columbia, signed the Ban on Non-Compete Agreements Amendment Act of 2020 (the “BNAAA” or the “Act”). The BNAAA is one of the country’s most robust pieces of legislation to ban non-compete provisions. The Act is sure to affect employers in neighboring Virginia and Maryland, which operate or have employees doing work in the District.
Who It Affects
The Act defines an “employer” as “an individual, partnership, general contractor, subcontractor, association, corporation, or business trust operating in the District, or any person or group of persons acting directly or indirectly in the interest of an employer in the District with respect to an employee, including a prospective employer…” An “employee” is an “individual who performs work in the District on behalf of an employer and any prospective employee who an employer reasonably anticipates will perform work on behalf of the employer in the District…” Exempted from the Act’s definition of “employee” are 1) volunteers of certain educational, charitable, religious, or non-profit organizations; 2) certain lay members of religious organizations; 3) casual babysitters; and 4) “medical specialists.”
While “employer” and “employee are broad terms, “medical specialist” is narrowly defined as an individual who performs work in D.C. for an employer engaged primarily in the delivery of medical services, and who: a) holds a license to practice medicine; b) is a physician; c) has completed medical residency; and d) has a total compensation of $250,000 per year. Employers will be able to require medical specialists to sign non-competes, but the Act provides medical specialists with certain protections. Based on the definition of medical specialists, no longer will affected medical employers be able to have an individual then currently in residency sign a non-compete.
The BNAAA’s definition of a non-compete provision is expansive. A “non-compete provision” is a written prohibition between employer and employee that prevents an employee from working for or providing services for another, or for one’s own, either during or after employment. This expansive term could include non-solicitation provisions too, though unlikely. Provisions that prohibit the disclosure of trade secrets or confidential information or non-compete provisions in the context of a sale of a business expressly do not fall within the definition of a non-compete provision.
Under the Act, employers will also no longer be able to have workplace policies that prohibit employees from moonlighting (even if the side work is for a competing business). It is unclear what the interplay will be between the BNAAA’s “no moonlighting provision” and the common law concepts of an employee’s duty of loyalty or duty not to usurp corporate opportunities.
The Act contains certain notice requirements for all affected employers as well as separate notice requirements for employers seeking to require a medical specialist to sign a non-compete. The BNAAA requires a covered employer to provide written notice of certain text of the Act, 90 days after the Act becomes applicable, 7 days after an individual becomes an employee, and 14 days after an employee provides a written request for such text. While employers may require medical specialists to execute non-competes, the Act’s preconditions of doing so are 1) providing the provision directly to the medical specialist at least 14 days before execution of the agreement with the non-compete provision; and 2) simultaneously providing a written notice containing certain protections for medical specialists. The BNAAA also contains anti-retaliation provisions for employees as well as medical specialists with larger monetary remedies.
The Mayor may seek administrative penalties for each violation of the Act generally ranging from $350-$1,000, except that for violations of the Act’s anti-retaliation provisions, penalties are at least $1,000 per violation. Employers who 1) attempt to have employees or medical specialists (without meeting the pre-conditions) sign a non-compete provision, 2) have a “no moonlighting” policy, or 3) fail to provide employees with the Act’s text within the required time frame may also be liable to an aggrieved employee for $500-$1,000 per violation for the initial offense and at least $3,000 for subsequent offenses. Any employer that tries to enforce a non-compete unenforceable under the Act may be liable to the employee for no less than $1,500 for a first offense and no less than $3,000 for a subsequent offense. If an employer violates the Acts non-retaliation provisions, the employer may be liable to the employee or medical specialist for $1,000-$2,500 for first offenses and no less than $3,000 for later offenses.
When It Applies
The precise date that the Act applies is unknown. After Mayor Bowser signed the Act on January 11, 30 “legislative days” of Congress must elapse to allow for Congressional review under the D.C. Home Rule Act. The BNAAA must then be published in the D.C. Register and shall not apply until the date the Act’s fiscal effects are included in an approved budget and financial plan.
Luckily, the Act is not retroactive. Affected employers still have time to engage counsel to review and revise existing non-compete agreements or draft new agreements, and to require employees to sign such agreements before the Act’s applicability date.
Kaufman & Canoles remains available to handle any of your employment law needs with licensed attorneys in Virginia, North Carolina, Maryland, and D.C.
The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2023.