New District of Columbia Non-compete Law Takes Effect

On October 1, 2022, new legislation signed by the city’s mayor relating to non-compete clauses took effect in the District of Columbia, which houses key parts of the federal government as well as many private businesses.

Most observers likely will conclude that such legislation is a “win” for District of Columbia employers and other parties like business purchasers who want to protect their investments and sensitive information.

During 2020, the District of Columbia passed legislation on non-competes, the Ban on Non-Compete Agreements Amendment Act of 2020. Enacting broad prohibitions vis-à-vis this type of legal agreement, the law constituted one of the most sweeping bans on such provisions in the US.

Under the original non-compete legislation, the following measures were enacted:

• all employers operating in the District of Columbia and all employees working therein were subject to the law;
• with limited exceptions, such employers were barred from requiring their employees to be subject to non-competes applicable to other employers, either simultaneously with their current positions or subsequent thereto; and
• such prohibition did not apply to certain positions: medical professionals earning more than $250,000 per year, unpaid volunteers, employees of the federal and District of Columbia governments, babysitters and religious officials and, significantly, buyers and sellers of businesses.

The revised law contained a number of modifications to the above measure. Known as the Non-Compete Clarification Amendment Act of 2022, this new law provides as follows:

• to be covered, employees are required to spend most of their working time in the District of Columbia or to work for a substantial amount of time in such jurisdiction but not more than 50% of their time working outside thereof;
• medical specialists earning more than $250,000 annually and babysitters are still excepted from the law; however, religious officials and unpaid volunteers are now subject to the revised non-compete legislation;
• “highly compensated employees” (in other words, those who earn $150,000 or more annually, with compensation to include bonuses, commissions, overtime pay and vested stocks) will no longer be covered by the non-compete ban; and
• sellers and buyers of a business are permitted to agree to be bound by non-compete agreements.

Finally, the revised legislation contains a narrower formulation of the terms which a prohibited non-compete agreement may encompass relative to the 2020 law. The following provisions no longer give rise to non-compete agreement concerns: those prohibiting 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 revised District of Columbia legislation on non-competes went into effect on October 1, 2022.

Do you have non-compete-related questions or concerns? Are you trying to better align your non-compete agreements with the requirements of applicable law? If so, please reach out to a White Plains Non-Compete Agreements lawyer to set up an introductory consultation.