New D.C. Law Bans Most Non-Compete Employment Policies

On October 1, 2022, the District of Columbia joined a handful of states, including its neighbors, Maryland and Virginia, in limiting employers’ use of “non-compete” agreements to restrict employees’ freedom to work elsewhere. A “non-compete clause” can be added to an agreement when an employee is hired, or to a separation agreement when the employee leaves. Either way, the employee agrees to requirements that he or she will not work for a competitor or start a competing business.  These agreements had their origin long ago, when employees of a small shop would open a competing shop across the street. For example, a medical practice that hired and trained a new, young doctor may want to restrict that doctor’s ability to open or join a nearby competing practice, potentially taking customers away from his former practice.

The impact of these agreements on employees, however, is potentially dramatic: a “non-compete” agreement can prevent an employee who has spent time learning the skills of a business or profession from earning a living using those skills with another employer. In fact, employers have recently insisted that even low-wage employees in positions which require little training – such as janitorial or service employees – also sign non-competes, which prevents them from changing jobs to earn more money and, on the contrary, makes them virtual prisoners in their low-wage jobs. In Maryland and Virginia, an employer cannot require a low-wage worker to agree to this type of restriction.

Some states have enacted legislation permitting non-compete agreements only if they are limited by time, geographic area, job, or industry. So, for example, a surgeon in D.C. could not be prevented from taking a job as a hospital administrator anywhere in the country for the rest of her life. With the D.C. Non-Compete Clarification Amendment Act of 2022 (“the Act”), the District of Columbia has gone beyond its neighbors and barred employers from offering or requiring non-compete agreements from any of certain employees.

The Act covers employees who earn less than $150,000 per year, or medical specialists who earn less than $250,000 per year. Employees who earn above those limits are subject to some restrictions.  Importantly, the Act only covers employees who spend, or are expected to spend, more than 50% of their work time in the District. It is not yet clear whether workers whose jobs are in the District, but who live in and work remotely from Maryland or Virginia, are covered by the Act.

There are important exceptions: the Act does not apply to federal or D.C. government employees, partners in a partnership, or casual babysitters. Moreover, the Act does not prohibit non-disclosure agreements, which prohibit employees from sharing their former employer’s proprietary or confidential business information with their next employers. Also, the Act prevents only non-compete agreements entered into after October 1, 2022; earlier agreements are still in effect but may be subject to challenge.

Significantly, in addition to banning any future non-compete agreements, the Act prohibits employers from taking adverse action against any employee who refuses to sign a non-compete agreement; who fails to comply with an unlawful non-compete agreement; or who blows the whistle on the existence of such an unlawful policy.

If an employer violates the Act, the Mayor and Attorney General for the District of Columbia may fine non-compliant employers. The Act also allows employees to sue an employer for attempting to enforce a non-compete policy or for retaliating against them for complaining about the unlawful policy.

If your employer has presented you with a non-compete agreement, or if you have such an agreement and are looking to change jobs, the attorneys at Kalijarvi, Chuzi, Newman, & Fitch may be able to help.