Are your non-compete agreement and manual still legal? DC joins national trend by adopting sweeping ban on non-compete agreements | Baker donelson
DC non-compete ban
On January 11, 2021, DC adopted the An Act to Amend the Non-Competition Agreements Act, 2020 (the Act), which contains one of the most extensive prohibitions on non-compete agreements in the country. The law prohibits employers from requiring an employee to sign a contract or maintain a workplace policy that includes restrictions on employee competition, with a few exceptions. The law is expected to come into force in the fall of 2021.
Who is covered by DC’s non-compete ban?
Generally, any employer operating in DC is covered by the law. The law broadly defines an “employer” as an individual, partnership, general contractor, subcontractor, association, corporation, or commercial trust operating in the district, but does not cover the DC government or the US government. . Interestingly, the law does not define what it means for an employer to “operate in Washington”. Therefore, it is not known whether the ban on non-compete agreements will apply to out-of-state entities whose employees live and work remotely in Washington. or employees who occasionally render services for their employers in DC
The Act also contains a relatively broad definition of the term “employee”, which refers to any person who performs work in Washington on behalf of his employer. The law excludes persons who are unpaid volunteers in educational, charitable, religious or non-profit organizations, elected or appointed lay members of religious organizations, persons employed as occasional babysitters in an employer’s residence and some licensed medical specialists who have completed their medical residency and receive total compensation of at least $ 250,000 per year.
What activities does DC’s non-compete ban prohibit?
Employers are specifically prohibited by law from requiring current or potential employees to sign a non-compete agreement or from maintaining workplace policies that restrict an employee’s ability to become employed by another person, to receive remuneration for providing services to another person or for carrying on their own business. Notably, while the laws of several other states governing non-competitors generally allow employers to restrict employees from engaging in other employment while working for their employers, the law is distinct in that an employee may work. for a competing company while still being employed by his or her employer. his employer.
Employers are expressly prohibited by law from retaliating against employees for (i) refusing to accept a non-compete provision, (ii) failing to comply with a non-compete provision or a non-compete policy. workplace made illegal by law, (iii) to inquire about or complain about the existence, applicability or validity of a non-competition provision or workplace policy that the The employee reasonably believes to be prohibited, whether from an employer, colleague, employee’s lawyer or government entity, or (iv) seek the appropriate advice required by law.
The Law does not apply retroactively, which means that non-competition agreements entered into before the date of application of the Law are still valid and enforceable.
Is employee notice required?
The Act requires all employers to provide employees with the following written notice either (i) no later than 90 days after the date of application of the Act, (ii) seven days after the date of hire of an employee, and (iii) within 14 calendar days of a written request by the employee for such notice:
No employer operating in the District of Columbia may request or require an employee working in the District of Columbia to accept a non-compete policy or agreement, pursuant to the Prohibition Amendment Act of 2020. non-compete agreements.
What about my company’s existing confidentiality agreement?
The law does not prohibit or prevent employers from enforcing their existing confidentiality agreements and expressly permits employers to enforce otherwise legal contractual provisions and workplace policies that prevent employees from disclosing information. confidential, proprietary, or sensitive information of their employers, customer lists, customer lists, and trade secrets.
Key takeaways from DC’s non-compete ban
By enacting the law, DC virtually affects the ban on most non-compete agreements and policies, and is following in the footsteps of states like California, North Dakota, and Oklahoma, which ban virtually all non-competition agreements. -competition.
While DC’s ban applies to virtually all employees at different income levels, various state legislatures have targeted their efforts to prohibit employers from requiring low-wage workers to enter into no-pay agreements. -competition.
States that have enacted non-compete bans on low-wage workers
Under Section 40.1-28.7: 8 of the Virginia Code, employers are prohibited from entering into, enforcing, or threatening to enforce a non-compete agreement with any low-wage employee. A “low-wage” employee is an employee whose average weekly wage is lower than the Virginia average weekly wage, which is about $ 1,200 per week or $ 62,000 per year. Also included in this definition are students, apprentices, and independent contractors who receive an hourly rate lower than the Virginia median weekly wage. Notably, Virginia law allows for non-compete agreements with employees whose income comes, in whole or in part, from sales commissions, incentives or bonuses. Virginia’s non-compete restriction took effect on July 1, 2020.
The Maryland legislature has also followed the trend of restricting non-compete agreements for low-wage workers. Its law of non-competition, found in Chapter 3-716 of Maryland’s Labor and Employment section, came into effect on October 1, 2019 and prohibits the use of non-compete agreements for employees who earn less than or equal to $ 15 an hour or 31,200 $ per year. Similar to DC law, Maryland law allows employers to maintain non-solicitation agreements and other contracts with employees related to making or using customer lists or other proprietary business information.
Likewise, on September 8, 2019, RSA Section 275: 70-a took effect in New Hampshire, prohibiting any employer from requiring a low-wage employee to enter into a non-compete agreement. The law defines the term “low-wage employee” as an employee who earns an hourly rate less than or equal to 200 percent of the federal minimum wage or an hourly rate less than or equal to 200 percent of the tip minimum wage in the state. . New Hampshire law outright prohibits any agreement between an employer and a low-wage employee that prevents the employee (i) from working for another employer for a specified period, (ii) from working in a specified geographic area; or (iii) perform the same type of work for another employer in a competing enterprise.
Washington State’s non-competition ban on low-wage workers went into effect on January 1, 2020 and can be viewed at RCW 49.62. Under this law, employers can only apply non-compete agreements to employees who earn at least $ 100,000 per year or to independent contractors who earn at least $ 250,000 per year. Washington’s law is distinct in two ways. First, it set a higher pay threshold for “low-wage” employees than in most states. Second, it applies retroactively – meaning that non-compete agreements signed before the law’s effective date of January 1, 2020, are also subject to the law. However, the law explicitly states that penalties will only be imposed on an employer who attempts to enforce an illegal non-competition agreement after January 1, 2020. Similar to other state laws governing non-competitors , the law does not otherwise restrict confidentiality agreements and other agreements relating to trade secrets, proprietary information or inventions. In enacting its restrictions on non-competitors for low-wage employees, the Washington state legislature noted that labor mobility is essential to economic growth and that these agreements restrict competition or hiring may be unreasonable “membership contracts”.
Key takeaways for employers
In light of this recent trend for states to regulate the enforceability of non-competition agreements and workplace policies or to ban them outright, employers should take the following steps to ensure compliance:
- Familiarize yourself with the laws governing non-compete agreements in your state and the states in which your business operates. It is essential to know the specific restrictions (ie whether virtually all non-competitors are prohibited or only agreements with low-paid employees, and how that term is defined in the law). Also consult with an employment counselor who can provide advice on specific restrictions that each business may be subject to and advise on best compliance practices.
- Review existing employment contracts, workplace policies, letters of offer, and onboarding practices to confirm that none of these documents contain language that may violate your state’s law governing employment. commitments not to compete. For example, the DC law covers employment contracts and also prohibits employers from including language limiting an employee’s outside business activities in their workplace policies.
- Write or modify existing agreements to protect your business interests. As noted above, most states allow employers to maintain agreements and policies relating to confidential, proprietary, or sensitive information, customer lists, customer lists, and trade secrets. It may be beneficial to implement or revise these agreements to be more robust and effective in protecting your legitimate business interests, as states tend to limit the enforceability of non-competitors.