In July 2019, Maryland banned non-compete clauses for employees who earn $15 an hour or $31,200 a year, or less. In 2020, neighboring Virginia passed a law prohibiting non-competes for “low-wage employees” (individuals earning less than $1,137 a week or $59,124 a year). The District of Columbia rounded out the metropolitan area’s coverage of the issue with its own law in 2021, although the D.C. law was far more expansive than those in Maryland and Virginia. The D.C. law has never taken effect.
D.C. has now walked back some of the restrictions contained in the first version of the law. The amended law is scheduled to go into effect on November 10.
In the 2021 version of the law, D.C. generally prohibited any non-compete provision, which it defined as one that “prohibits the employee from being simultaneously or subsequently employed by another person, performing work or providing services for pay for another person, or operating the employee’s own business.” The law exempted provisions that (1) restricted the “disclos[ure]” of confidential, proprietary, or sensitive information, (2) were included as part of the sale of a business, or (3) applied to medical specialists making at least $250,000 per year. The law also prohibited retaliation and included a notice requirement. Violations were subject to civil penalties, and affected individuals could also file private lawsuits against their employers or former employers.
The effective date was continually delayed as a result of the COVID-19 pandemic. Nevertheless, the law was a concern to employers because it would have made it easier for employees to quit and go to work for competing companies. The law would even have allowed employees to hold second jobs (including, potentially, second jobs with competitors of their primary employers). This would have been a significant change to the standard expectation that employees devote their full professional attention to a single job. Such arrangements could have resulted in inefficiency, not to mention conflicts of interest.
But the latest version of the law is more moderate and employer-friendly.
First, the amendment clarified that the law applies only to employees who either (1) spend at least 50 percent of their working time in the District, or (b) spend substantial time working in the District and no more than 50 percent of their working time in another jurisdiction. Given that many employees working in D.C. or for D.C. businesses live, and probably work from home, in Maryland and Virginia, this clarification will help lessen disputes as to which jurisdiction’s non-compete law applies.
Second, the amendment has expanded exemptions. As amended, the law exempts “highly compensated employees” receiving at least $150,000 a year. In addition to allowing employers to restrict their highest-level employees, the change may also result in pay increases for mid-to-high level employees, as employers try to get them to the $150,000 threshold.
Third, the amendment restricts non-competes to one year for highly compensated employees and two years for medical specialists. This change could actually extend the term of some non-competes, many of which have historically been less than a year because of employers’ fears that they would be unenforceable otherwise. The amended law creates a presumption that anything less than one year is enforceable.
Fourth, the amendment exempts from coverage policies that prohibit or restrict employee disclosure, use, sale, or access of the employer’s confidential information. The older version of the law protected only policies that prohibited disclosure. Thus, under the older version, an employee could theoretically have used confidential information of the employer in his or her “second job” with a competitor.
Finally, the law was amended to allow employer policies that prohibit an employee from “[a]ccepting money or a thing of value for performing work” if doing so will “[c]onflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest.” This change should further help employers craft (or keep) policies which seek to require or foster loyalty among their employees.
Again, the amended law will take effect November 10. If you need assistance amending your current noncompete policies or agreements, please contact any member of Constangy’s Trade Secrets & Unfair Competition Practice Group or any of our attorneys who practice in the District of Columbia.