D.C. Council’s Ban on Non-Compete Agreements

Friday, November 13, 2020

Regardless of its well-deserved popularity as an employee-friendly jurisdiction, the District of Columbia is absent from the listing of “blue states” which have adopted laws limiting using noncompete agreements. Over the previous few years, states akin to Illinois, Maryland, Massachusetts, New Hampshire, Oregon, Rhode Island, Virginia, and Washington have enacted such legal guidelines. Laws titled the “Ban on Non-Compete Agreements Modification Act of 2019,” Invoice 23-494 (B23-0494), was launched within the District of Columbia a couple of 12 months in the past, however the Council of the District of Columbia referred the proposal to its Committee on Labor and Workforce Improvement and has not taken motion since then.

This era of inaction could also be coming to an finish. The committee is dusting off B23-0494 and is at the moment planning a markup and vote on it this month. The aim is to have the laws handed by the complete Council earlier than the present legislative interval expires on December 31, 2020. Observers will probably be to see whether or not and the way the markup could also be impacted by the progressive tailwinds of the soon-to-be Biden–Harris White Home.

Scope and Protection

As launched, B23-0494 successfully prohibits employers from getting into into noncompete agreements with staff whose “charge of pay” is the same as or lower than 3 times the minimal wage. Utilizing the present D.C. minimal wage of $15 per hour, the invoice would apply to staff incomes as much as $45 per hour. When it comes to its protection, the invoice borrows the definitions of “Worker” and “Employer” from the Minimal Wage Act Revision Act of 1992 (D.C. Legislation 9-248; D.C. Code §§ 32-1002(2) and 32-1002(3)), that means that an employer topic to that regulation could be lined.

Agreements and Insurance policies Prohibited

In its present model, B23-0494 would prohibit an employer from requiring an worker to signal an settlement that features a noncompete provision, which is outlined as “a time period of a written settlement between an employer and an worker that restricts or bars the worker from being concurrently or subsequently employed by one other employer (A) [i]n a selected geographic area; or (B) [f]or an indefinite or specified time frame.” The invoice would make such an settlement entered into on or after the efficient date of the laws void as a matter of regulation. The invoice additionally would prohibit an employer from having a office coverage that limits the proper of a lined worker to be concurrently or subsequently employed by one other employer in a selected geographic area or for an indefinite or specified time frame. Lastly, the invoice would prohibit an employer from retaliating towards an worker for failing to adjust to such an settlement or coverage. Retaliation towards an worker for asking or informing the employer (or others) concerning the validity of an settlement or coverage the worker fairly believes violates the laws additionally could be prohibited.

The invoice accommodates a grandfather clause for present agreements. Particularly, a noncompete provision that’s contained in an settlement entered into earlier than B23-0494’s efficient date wouldn’t be rendered void. Nonetheless, the invoice doesn’t have a parallel grandfather clause to protect office insurance policies that had been established earlier than the invoice’s efficient date.

Financial savings Clause

The invoice doesn’t include any categorical exceptions or carve-outs, however solely a single financial savings clause. That clause states, “Nothing on this title is meant to impair an employer’s potential to put cheap restrictions on an worker’s proper to request or use depart from work, supplied such restrictions don’t violate the legal guidelines of the District of Columbia or america.” Ostensibly, this provision goals at B23-0494’s language prohibiting an employer from having a “office coverage that limits the proper of [covered] staff … from being concurrently … employed by one other employer … for an indefinite or specified time frame.” (Emphasis added.)

As written, this language would make it illegal for an employer to ban an energetic worker from working for a direct competitor throughout pre- or post-work hours, on weekends, throughout days off, and even through the workday itself. By stopping an employer from proscribing the actions of a present worker, the invoice’s authors are creating a major downside. Not like a former worker who goes to work for a competitor, a present worker has real-time entry to the employer’s energetic or proposed enterprise plans, not merely historic data of what these plans was. If a D.C. employer can’t forestall a present worker from working for a direct competitor, will probably be unable to guard its enterprise from being undermined by a disloyal worker.

The financial savings clause wouldn’t provide an employer significant safety. It could allow cheap restrictions on exterior employment solely in circumstances when an worker requested or used “depart from work.” As written, the financial savings clause wouldn’t apply within the extraordinary circumstance by which an worker works for a competitor throughout off-duty hours. Except the D.C. Council rewrites the financial savings clause, it gives an employer solely the phantasm of safety.

Applicability to Nonsolicitation Agreements

Not like legislative restrictions on noncompetes in some states, D.C.’s invoice doesn’t at the moment include an categorical carve-out for agreements to not solicit an employer’s clients or staff. By comparability, the Massachusetts Noncompetition Settlement Act excludes “covenants to not solicit or rent staff of the employer” in addition to “covenants to not solicit or transact enterprise with clients, shoppers, or distributors of the employer.” Equally, the Revised Code of Washington excludes nonsolicitation agreements, confidentiality agreements, and covenants prohibiting use or disclosure of commerce secrets and techniques from the definition of “noncompetition covenant.”

It’s potential to argue that an exception for nonsolicitation agreements is just not mandatory. The reasoning could be that an worker’s settlement to not solicit clients or staff of his or her employer doesn’t, by its nature, “prohibit[] or bar[]” the worker from “being … employed by one other employer” both in “a selected geographic area or “[f]or an indefinite or specified time frame.” Nonetheless, as with every new laws, there are certain to be disputes concerning the invoice’s supposed scope. By not together with within the invoice an categorical exclusion for nonsolicitation agreements, because the state legislatures in Massachusetts and Washington did, the D.C. Council could possibly be leaving the door open for litigation on this challenge. Definitely, the added readability of a carve-out for nonsolicitation agreements could be welcomed by employers and will obviate some quantity of litigation over statutory interpretation.

Use of Confidential or Proprietary Info

As written, B23-0494 additionally omits language clarifying its applicability to agreements that prohibit an worker from utilizing or disclosing his or her employer’s confidential or proprietary info. States akin to Massachusetts and Washington have included language expressly excluding agreements defending confidential and proprietary info from the sweep of their laws proscribing noncompete agreements. Language clarifying that D.C.’s invoice doesn’t invalidate or proscribe the enforcement of agreements prohibiting the use or disclosure of confidential or proprietary info would make sure the validity of agreements defending the reputable pursuits of employers and keep away from pointless litigation over the supposed scope of the invoice.

Gross sales of Companies

The invoice doesn’t at the moment include language exempting noncompete provisions included in agreements entered into in reference to gross sales or purchases of possession pursuits in companies. Even California, lengthy recognized for its sturdy prohibition of restrictive covenants as void towards public coverage, permits noncompete agreements in reference to gross sales of companies. Together with a sale-of-business exemption in noncompete laws displays primary frequent sense, since a purchaser is unlikely to purchase a enterprise from somebody who’s going to proceed to compete towards that enterprise. Except an worker can signal an enforceable noncompete covenant when a enterprise is offered, the invoice might make it tough, if not unattainable, for a enterprise proprietor to discover a purchaser for its pursuits.

Penalties and Compliance

The invoice accommodates provisions establishing fastened quantities of legal responsibility starting from $500 to $2,000 per violation per worker, relying on the offense. Ought to the invoice develop into regulation, an employer’s mere non-enforcement of offending agreements or insurance policies is not going to suffice to flee legal responsibility. That’s as a result of the act of requiring a lined worker to signal an settlement with a noncompetition provision exposes an employer to legal responsibility to every worker who indicators. Equally, an employer that maintains a coverage in violation of the invoice would face legal responsibility primarily based upon the variety of staff topic to the illegal coverage. To restrict civil legal responsibility, an employer that requires new hires to signal agreements with noncompete provisions could need to think about affirmatively limiting the signatories to staff paid above the pay stage set by the invoice. An employer that maintains noncompete provisions in insurance policies could need to think about including particular coverage language excluding staff paid lower than the invoice’s threshold.

Legislative Prospects

The ultimate contours of B23-0494 could also be influenced by comparable laws lately enacted in neighboring Maryland and Virginia. In 2019, Maryland adopted a regulation prohibiting employers from getting into into noncompete agreements with staff making lower than $15 per hour or $31,200 per 12 months. Virginia adopted in 2020 by prohibiting noncompete agreements for workers incomes lower than the common weekly wage within the Commonwealth (roughly $1,200 per week or roughly about $60,000 per 12 months). The model of D.C.’s invoice launched final 12 months would prohibit noncompete agreements for staff at revenue ranges larger than the extent at which Maryland drew that line however beneath the extent at which Virginia drew the road.

Because the D.C. Council marks up the invoice, it should determine how broad a section of the workforce to cowl and what sorts of exclusions or carve-outs to include. The D.C. Council might stick with the “low wage” method adopted in Maryland and Virginia or go together with an method that’s extra aggressive. Ought to the legislative markup lead to one thing akin to an all-out ban, the D.C. Council might give companies a cause to relocate their D.C. places of work to close by Virginia or Maryland. A low-wage cutoff just like what Maryland and Virginia adopted would mitigate that threat. We could know higher within the subsequent few weeks which path the D.C. Council finally chooses to comply with.