Key Factors:

• Initially poised to be one of many broadest non-compete bans in
  the nation, Washington, D.C.’s scaled-back non-compete regulation
  grew to become enforceable on October 1, 2022.
• The brand new regulation prohibits non-competition provisions for lined
  workers however permits non-competes with extremely compensated workers
  that meet sure drafting and procedural necessities.
• The brand new regulation doesn’t prohibit non-competition provisions with
  the vendor of a enterprise, in any other case lawful confidentiality
  provisions or sure anti-moonlighting provisions.
• All D.C. employers with permissible office insurance policies
  limiting workers’ use or disclosure of confidential
  info or exterior employment actions should present copies of
  the insurance policies to affected D.C. workers by October 31, 2022 and
  adjust to extra discover necessities.
• D.C. employers who violate the regulation can be topic to
  penalties.

After two years of delays and amendments, Washington, D.C.’s
new non-compete regulation lastly grew to become legally efficient on October 1,
2022. As summarized in our prior alert, Washington D.C.’s unique Ban on Non-Compete Agreements Modification Act of
2020 (the “2020 Laws”) would have banned
non-competition agreements and anti-moonlighting insurance policies for
just about all D.C. workers. Backlash from the D.C. enterprise
neighborhood led the D.C. Council to delay implementation of the 2020
Laws and cross a scaled-back model within the type of the Non-Compete Clarification Modification Act of 2022
(“Amended Act”).

Though non-competition provisions entered into with
“lined workers” on or after October 1, 2022 are void
and unenforceable, the Amended Act permits non-competition
agreements with extremely compensated workers and permits employers
to make the most of confidentiality agreements and anti-moonlighting
insurance policies in sure circumstances. The Amended Act additionally consists of
employer discover necessities and imposes penalties for
violations.

Non-competition agreements entered into earlier than October 1, 2022
should not affected by the Amended Act; nonetheless, the brand new regulation applies
to preexisting office insurance policies and practices.

Lined Employers

The Amended Act broadly applies to all “employers,”
outlined as any particular person, partnership, basic contractor,
subcontractor, affiliation, company or enterprise belief working
in D.C., or any particular person or group of individuals appearing instantly or
not directly within the curiosity of an employer working in D.C. in
relation to an worker. The definition consists of potential
employers however excludes the D.C. and United States governments.

Scope of Staff Topic to Non-Compete Ban

Underneath the Amended Act, non-competition provisions are banned for
any “lined worker,” which is outlined
as an worker who will not be a “extremely compensated worker”
and: (1) spends greater than 50 % of his or her work time for
the employer working in D.C.; or (2) whose employment for the
employer is predicated in D.C. and the worker recurrently spends a
substantial quantity of his or her work time for the employer in D.C.
and no more than 50 % of his or her work time for that
employer in one other jurisdiction. The time period “lined
worker” additionally consists of new hires who haven’t but began
work if the employer fairly anticipates that they’ll fall
into one of many two foregoing teams.

Employers navigating distant work preparations and
return-to-office necessities ought to maintain this definition in thoughts.
For instance, assuming equal workdays, the Amended Act would apply
to a non-highly compensated worker who recurrently works from the
employer’s workplace in Virginia two days every week however works
remotely from his or her dwelling in D.C. three days every week.

The next classes of persons are excluded from the
non-compete ban, and due to this fact can nonetheless be certain by
non-competition provisions: (1) extremely compensated workers; (2)
informal babysitters in or concerning the residence of the employer; (3)
companions in a partnership; and (4) D.C. and federal authorities
workers.

The time period “extremely compensated
worker” means an worker, aside from a broadcast
worker,¹ who is fairly anticipated to earn in a
consecutive 12-month interval, or who has earned within the previous
12-month interval, compensation higher than or equal to the
“minimal qualifying annual
compensation,” which is at the moment $150,000 or, if the
worker is a medical specialist, $250,000. Starting January 1,
2024, these thresholds will improve every year primarily based on will increase
within the Division of Labor’s Shopper Worth Index for All City
Shoppers within the Washington Metropolitan Statistical Space.

For functions of figuring out whether or not an worker meets these
thresholds, “compensation” is broadly
outlined as all financial remuneration the employer could pay or
promise the worker, together with hourly wages, wage, bonuses or
money incentives, commissions, additional time premiums, vested inventory
(together with restricted inventory models) and different funds offered on a
common or irregular foundation. The definition of compensation,
nonetheless, doesn’t embrace fringe advantages aside from these paid to
the worker in money or money equivalents.

Prohibited Agreements and Insurance policies

Underneath the Amended Act, “[b]eginning October 1, 2022, no
employer could require or request {that a} lined worker signal an
settlement or adjust to a office coverage that features a
non-compete provision.” The time period “non-compete
provision” is outlined as “a provision in a
written settlement or a office coverage that prohibits an worker
from performing work for an additional for pay or from working the
worker’s personal enterprise.” Of observe, the time period
“office coverage” consists of each written and unwritten
guidelines and practices.

The Amended Act units forth 4 classes of provisions that
are excluded from the definition of “non-compete
provision” (and due to this fact not affected by the brand new regulation)
offered that they’re in any other case lawful:

1. Non-competition provisions within the sale of enterprise
   context.
2. Non-disclosure or confidentiality provisions that prohibit or
   limit an worker from disclosing, utilizing, promoting or accessing
   the employer’s confidential or proprietary employer
   info.
3. Anti-moonlighting provisions that prohibit or limit an
   worker from “[a]ccepting cash or a factor of worth for
   performing work for an individual aside from the employer, throughout the
   worker’s employment with the employer, as a result of the employer
   fairly believes the worker’s acceptance of cash or a
   factor of worth underneath such circumstances will”: (a)
   “[r]esult within the worker’s disclosure or use of
   confidential employer info or proprietary employer
   info”; (b) “[c]onflict with the employer’s,
   trade’s, or occupation’s established guidelines concerning
   conflicts of curiosity”; (c) “[c]onstitute a battle of
   dedication if the worker is employed by a better training
   establishment”; or (d) “[i]mpair the employer’s means
   to adjust to District or federal legal guidelines or laws; a contract;
   or a grant settlement.”
4. A provision that gives a “long-term
   incentive,” which is outlined as “bonuses, fairness
   compensation, inventory choices, restricted and unrestricted inventory
   shares or models, efficiency inventory shares or models, phantom inventory
   shares, inventory appreciation rights, and different efficiency pushed
   incentives for particular person or company achievements sometimes
   earned over a couple of 12 months.”

Though the Amended Act clarifies some points that arose underneath
the 2020 Laws associated to the scope of the ban, a pair
points stay excellent and can be topic to additional
laws or judicial interpretation. First, the fourth exception
associated to long-term incentives is unclear, because the Amended Act does
not specify whether or not the exception applies to any
non-competition covenants in a long-term incentive settlement or
whether or not it’s restricted to forfeiture-for-competition provisions or
related provisions underneath which the penalty imposed on the worker
for competing in opposition to the employer is restricted to forfeiture of the
long-term incentive (versus any ban or limitation on future
employment). The written testimony obtained by the D.C. Council in
July 2021 advocated for an exception underneath which the non-compete
ban wouldn’t apply to long-term incentive awards which can be
forfeited if an worker joins a competitor, suggesting that the
exception could not have been meant to use to all
non-competition covenants in a long-term incentive
settlement.²

Second, the Amended Act is silent about whether or not different
restrictive covenants within the employment setting are permissible for
lined workers, equivalent to prohibitions on the solicitation of
prospects or workers. Though it stays to be seen how courts
interpret the Amended Act, prior studies by the D.C. Council’s
Committee on Labor and Workforce Growth prompt that
non-solicitation provisions should not meant to be lined by the
non-compete ban.³ Whereas the dearth of any categorical point out
of such provisions within the Amended Act means that they don’t seem to be
lined by the laws, employers can hedge in opposition to the
chance of courts making use of the statute to non-solicitation
provisions by treating them in the identical vogue underneath the Amended
Act as categorical non-competition clauses till there’s definitive
authority on the contrary.

Necessities for Non-Competitors Agreements with Extremely
Compensated Staff

For non-competition agreements with extremely compensated
workers, the Amended Act requires that such agreements embrace
three issues: (1) “[t]he useful scope of the aggressive
restriction, together with what companies, roles, trade, or competing
entities the worker is restricted from performing work in or on
behalf of”; (2) the geographic scope of the restriction; and
(3) the time period of the restriction, which can’t exceed one year from
the date of the worker’s separation from employment (or 730
days if the worker is a medical specialist). These statutory
necessities are along with the standard contractual necessities
vital for an enforceable settlement, equivalent to a sound supply,
acceptance and consideration to help the undertakings.

Employers should present extremely compensated workers with a
written copy of the non-competition provision at the very least 14 days
earlier than the person commences employment or, if the person is
already employed, at the very least 14 days earlier than the person should
execute the settlement. Moreover, every time the non-competition
provision is proposed to a extremely compensated worker, the
employer should present the worker with a statutory discover that
states the next:

The District’s Ban on Non-Compete Agreements Modification Act
of 2020 limits the usage of non-compete agreements. It permits
employers to request non-compete agreements from extremely compensated
workers, as that time period is outlined within the Ban on Non-Compete
Agreements Modification Act of 2020, underneath sure circumstances. [Name
of employer] has decided that you’re a extremely compensated
worker. For extra details about the Ban on Non-Compete
Agreements Modification Act of 2020, contact the District of Columbia
Division of Employment Providers (DOES).

Required Disclosures of Office Insurance policies

Along with offering the above discover to extremely compensated
workers, an employer “with a office coverage that features
a number of of the exceptions to the definition of non-compete
provision [namely, non-disclosure/confidentiality provisions;
anti-moonlighting and conflicts of interest rules; or
non-competition provisions in the context of long-term incentive
programs]. . . shall present a written copy of the provisions to an
worker”: (1) inside 30 days after the worker’s
acceptance of employment; (2) inside 30 days after October
1, 2022 (i.e., by October 31, 2022); and (3) any time such coverage
adjustments. This disclosure requirement applies to all affected D.C.
workers, not solely extremely compensated workers.

Though it seems that this disclosure requirement primarily
was meant to require employers to reveal conflicts of curiosity
restrictions, the requirement will be learn to use extra broadly to
any office coverage that’s permitted underneath the Amended Act primarily based
on its exclusion from the definition of “non-compete
provision.”⁴ Due to this fact, employers ought to plan to
present affected workers with copies of any confidentiality or
non-disclosure insurance policies, anti-moonlighting insurance policies, conflicts of
curiosity insurance policies, or different insurance policies that match underneath the
exception.

Prohibited Retaliation

The Amended Act prohibits employers from retaliating in opposition to or
threatening to retaliate in opposition to lined workers (i.e., workers
who can’t be topic to non-competition provisions) for: (1)
refusing to comply with a non-competition provision; (2) the lined
worker’s alleged failure to adjust to a non-competition
provision that’s prohibited underneath the Amended Act; (3) asking,
informing or complaining to an employer, coworker, lawyer, agent or
governmental entity concerning the existence, applicability or validity
of a non-competition provision that the worker fairly
believes is prohibited underneath the Amended Act; (4) requesting a replica
of the non-competition provision; or (5) asking the employer to
present the knowledge required underneath the Amended Act’s
disclosure necessities. The Amended Act additionally consists of related
anti-retaliation protections for extremely compensated workers.

Recordkeeping Necessities

The Amended Act instructs the Mayor to difficulty guidelines to implement
its provisions, together with “[r]ules requiring the preservation
and retention of office insurance policies, non-compete provisions,
non-compete agreements, the written disclosures required by [the
Amended Act], and different data associated to demonstrating
compliance.” The Amended Act authorizes the Mayor and the D.C.
Lawyer Basic to examine such data upon demand at any
affordable time.

Collective Bargaining Agreements

The Amended Act doesn’t supersede the phrases of a sound
collective bargaining settlement.

Penalties of Violations

Any non-competition settlement entered into on or after October
1, 2022 that violates the Amended Act is void and unenforceable.
The Amended Act additionally topics employers to administrative and civil
penalties for violations. The Mayor could assess administrative
penalties between $350 and $1,000 for every violation, besides that
the penalty for every retaliatory act can be at the very least $1,000.
Moreover, every aggrieved worker could pursue aid by submitting
an administrative grievance with the Mayor or by submitting a civil
motion in court docket to recuperate between $250 and $2,500 for every
violation, relying on the violation, or at the very least $3,000 for
sure subsequent violations.

Really useful Steps for Employers

Employers ought to think about the next steps to make sure
compliance with the brand new regulation:

• Consider the corporate’s worker inhabitants, together with
  distant staff, to determine all lined workers and all workers
  who meet the factors for extremely compensated workers.
• Evaluation and replace type supply letters, non-competition
  agreements, and different agreements that can be offered to lined
  workers to take away any non-competition provisions. (Employers additionally
  ought to you should definitely consider whether or not there’s enough
  consideration to help such up to date agreements for incumbent
  workers.)
• Make sure that any new non-competition agreements entered into
  with extremely compensated workers adjust to the Amended Act’s
  drafting necessities and are supported by consideration.
  (Agreements entered into earlier than October 1, 2022 don’t must be
  altered.)
• Put together process to adjust to the 14-day advance discover and
  the written statutory discover necessities for extremely compensated
  workers.
• Evaluation and replace written insurance policies, equivalent to worker handbooks
  and codes of conduct, and unwritten practices to make sure that they
  don’t violate the Amended Act.
• Put together plan to offer copies of any confidentiality or
  non-disclosure insurance policies, anti-moonlighting insurance policies, conflicts of
  curiosity insurance policies or different relevant insurance policies to all affected D.C.
  workers by October 31, 2022 and any time these insurance policies are
  modified, and to new hires inside 30 days after their acceptance of
  employment.
• Present coaching to managers and HR personnel concerning the Amended
  Act’s prohibitions and necessities.
• Maintain an eye fixed out for the principles to be issued by the Mayor and
  adjust to any recordkeeping necessities.
• Set a reminder to verify for the brand new compensation threshold for
  extremely compensated workers that can apply as of January 1,
  2024.

Footnotes

1. “Broadcast workers” (as outlined within the
Amended Act) can’t be certain by non-competition provisions, even when
they earn $150,000 or extra.

2. See Report on B24-256, the “Non-Compete
Clarification Modification Act of 2022”, Committee on Labor
and Workforce Growth, Council of the District of Columbia, at
27 (June 16, 2022), https://lims.dccouncil.gov/downloads/LIMS/47234/Committee_Report/B24-0256-Committee_Report1.pdf.

3. See, e.g., id. at 7 (“This
committee has identified that non-solicitation and non-disclosure
agreements are higher suited and narrowly tailor-made to defending
commerce secrets and techniques and different confidential info than non-compete
agreements.”).

4. See id. at 5-6 (“In a lot of the instances
detailed by the companies, amendments permitting battle of
curiosity restrictions on workers would merely preserve the standing
quo that existed in these workplaces. Nonetheless, with the complexity
of those extra exceptions, it might grow to be tough for an
worker to know whether or not their employer had such a coverage.
Due to this fact, the Committee print now requires employers who depend on
any of those exceptions to offer it in writing to the
worker.”).

The content material of this text is meant to offer a basic
information to the subject material. Specialist recommendation ought to be sought
about your particular circumstances.