D.C. Employers Should Prepare for a Broad Noncompete Ban
Washington, D.C., Mayor Muriel Bowser signed the Ban on Non-Compete Agreements Amendment Act of 2020 into law on Jan 11.
Bowser's decision means that the noncompete ban will become law if it survives the mandatory 30-day congressional review process that applies to all District of Columbia acts under the Home Rule Act.
If the noncompete ban becomes law, D.C. will become one of several jurisdictions — e.g., Illinois, Maryland, Virginia, California and Washington — that have statutorily limited the scope and enforceability of noncompete agreements.
The D.C. ban is significantly more aggressive than measures other states have undertaken in recent years to curtail restrictions on trade because it is effectively a near-total ban on agreements or policies that limit an employee's right to work for other employers both during and after employment.
Prohibitions and Requirements
The noncompete ban broadly prohibits D.C. employers from requiring or requesting that employees or prospective employees who will work in D.C. to agree to sign an agreement or abide by a workplace rule or policy restricting their simultaneous — i.e., moonlighting — or subsequent employment or provision of services.
This act also prohibits retaliation against employees or prospective employees who challenge or refuse to agree to abide by an agreement or workplace policy that the individual reasonably believes to be prohibited.
These prohibitions would apply to virtually all employees, with few exceptions — babysitters, certain medical professionals and instances where the seller of a business agrees not to compete with the buyer.
The noncompete ban also contains a notice requirement, which requires employers to provide notice using specific text that sets out employees' rights and remedies under the noncompete ban no later than 90 calendar days after the effective date of this act, seven calendar days after an individual becomes an employee or 14 calendar days after the employer receives a written request for such a notice from an employee.
Administration, Enforcement and Penalties
The noncompete ban is not retroactive, and accordingly, it will only apply to agreements entered into after the effective date of this act.
The noncompete ban will be administered and enforced by the mayor and attorney general and provides for enforcement by filing an administrative complaint with the mayor or a civil action in a court.
Employees are not required to file an administrative complaint before proceeding to civil litigation.
Concerning penalties, the noncompete ban provides that the mayor may assess an administrative penalty of "no less than $350 and no more than $1,000 for each violation of [this act]; except that each violation of [this act's anti-retaliation provisions] assessed against an employer shall be for not less than $1,000."
For civil actions, this act authorizes statutory penalties that range from $500 to $3,000 per violation. Civil claimants may also be awarded "such legal and equitable relief as may be appropriate," including, but not limited to, back wages, liquidated damages equal to treble the amount of back wages and reasonable attorney fees and costs.
Key Issues and Considerations
The text of the noncompete ban raises several issues and unanswered questions. One key issue that could lead to inadvertent violations is this act's broad definition of the term "noncompete provision."
The noncompete ban defines a noncompete provision as an agreement that prohibits an individual's employment or provision of services during and after their employment.
This means employers may need to revise or remove provisions that purport to require employees to agree to refrain from accepting conflicting employment during their employment term or requiring employees to devote their full or substantially full efforts to completing their duties with a given employer.
Employers will also need to carefully review and evaluate policies that broadly prohibit providing services to current, former, or prospective clients to determine whether they are so overbroad that they effectively prohibit employees from being "employed by another person [or] performing work or providing services for pay for another person."
This noncompete ban also broadly defines an employee as "an individual who performs work in the district on behalf of an employer."
Whether or not this might encompass individuals hired as independent contractors is a matter of interpretation.
Courts have interpreted other D.C. laws with similar language, such as the D.C. Human Rights Act, as excluding independent contractors from legal protections and remedies based in part on analogies to similar federal laws in the case of the D.C. Human Rights Act, by analogy to Title VII of the Civil Rights Act of 1964.
However, there is no federal noncompete law that courts could look to for guidance when attempting to interpret the noncompete ban.
The noncompete ban also leaves open the potential for a battle over the applicability of the election of remedies doctrine, which generally bars civil actions alleging violations of certain statutes that were filed in D.C. subsequent to a pending or concluded administrative action — effectively a prohibition on double-dipping.
Unlike other D.C. statutes that create administrative and civil avenues for relief — e.g., the D.C. Human Rights Act, the noncompete ban does not contain provisions that expressly prohibit employees from filing an administrative claim and later filing a civil action based on the same set of facts.
The noncompete ban merely provides that "a person aggrieved by a violation [of this act] may pursue relief by filing" and an administrative complaint "or" a civil action.
General principles of statutory interpretation strongly suggest that the D.C. council's use of the term "or" requires employees to choose between filing an administrative complaint or a civil action, but the council's failure to include specific election of remedies language — as it has done in multiple, earlier enacted laws — will undoubtedly be seized upon by employees who are dissatisfied with the speed or outcome of their initial filing.
The noncompete ban expressly exempts nondisclosure and confidentiality agreements from its scope.
That carveout will be particularly meaningful for employers in industries where pricing and other highly confidential information are critical to their success.
The exemption raises the question of whether an employer could effectively bar a worker from engaging in competitive employment by arguing that working for a competitor would necessarily require the disclosure of confidential or proprietary information.
Such arguments will likely require the D.C. courts to finally determine the applicability and scope of the inevitable disclosure doctrine. The doctrine allows a plaintiff (typically a former employer) to establish trade secret misappropriation by demonstrating that a worker's new employment will inevitably cause them to rely on the plaintiff's trade secrets.
The lone opinion from the U.S. District Court for the District of Columbia that discusses the doctrine, 2014's Information Strategies Inc. v. Dumosch,[1] 13 merely provides that D.C. courts have not addressed the doctrine and that the federal district court could not rule out the possibility that doctrine might apply under DC law.
It may still prove difficult for government contractors to use agreements and policies that protect confidential information as a bar on subsequent employment given the government's strong interest in program continuity and the fact that confidential information is often made available to other contractors and government employees during the performance of a contract.
Employers should also note that this act expressly authorizes class or collective actions by aggrieved employees through its incorporation.[2]
That means employers may face class or collective actions brought in the name of all employees within the company who were presented with a noncompete provision or who were subjected to a noncompete policy in violation of this act.
This act instructs the mayor to "issue rules to implement the provisions of [this act], including rules requiring employers to keep, preserve, and retain records related to compliance with [this act]." Accordingly, there may yet be more requirements and legal nuances if this act is implemented.
Next Steps for Employers
There is still a chance that the noncompete ban will not survive the congressional approval processes, but that outcome seems less likely under the Biden administration.
Employers should be aware of the potential implementation of this act, and should immediately contact counsel to identify, review, and make appropriate revisions to all written agreements and policies.
Employers should also begin developing plans to train managers to ensure that they provide accurate information and avoid claims of retaliation, create plans to ensure compliance with the noncompete ban's notice and record-keeping requirements and evaluate current and potential policies directed at protecting confidential and proprietary information.
Posi Oshinowo is special counsel, Todd A. Bromberg is a partner, and Martha G. Vázquez is an associate at Wiley Rein LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] 13 F. Supp. 3d 135, 143 (D.D.C. 2014)
[2] By reference of D.C. Code § 32-1308
