Washington, DC employers shouldn’t be going to should scrap all their non-compete agreements after all. On July 12, 2022, the DC Council (the “Council”) handed the Non-Compete Clarification Modification Act of 2022 (B24-0256) (the “Modification”), which amongst completely different points, tempers the District’s near-universal ban on non-compete provisions to permit restrictions for terribly compensated staff. For added analysis on the distinctive DC Ban on Non-Compete Act, please see our earlier articles proper right here and proper right here.
The Council delayed the preliminary ban numerous situations in response to ideas from employer groups. However, barring an unlikely veto or Congressional movement all through the compulsory analysis interval, the amended ban will take impression as of October 1, 2022. We ingredient the vital factor revisions to the ban beneath.
Non-Competes Permitted for Extraordinarily Compensated Workers and Medical Specialists
Together with permitting non-compete agreements with medical specialists making higher than $250,000 yearly, the revised ban permits DC employers to enter non-compete agreements with almost any employee whose full compensation is or inside cause anticipated to be higher than $150,000 per yr. The Modification clarifies that “compensation” incorporates bonuses, commissions, extra time premiums, vested stock, and completely different funds supplied on an on a regular basis or irregular basis; nonetheless, fringe benefits shouldn’t be going to rely in direction of the brink till they’re paid in cash or cash equivalents. Beginning January 1, 2024, the brink will enhance in proportion to the annual widespread enhance inside the US Division of Labor’s Shopper Worth Index for All Metropolis Buyers inside the Washington Metropolitan Statistical House for the sooner calendar yr adjusted to the closest full dollar.
A final-minute industry-specific change carved out an exception that prohibits non-competes for any staff, other than product sales representatives, who work for a television, radio, cable, satellite tv for pc television for laptop, or completely different broadcasting station or group – irrespective of full compensation.
Requirements for Non-Competes with Extraordinarily Compensated Workers
The Modification provides certain requirements for non-compete agreements between an employer and very compensated employee executed on or after October 1, 2022. To be reputable and enforceable, any such settlement ought to:
- Specify the helpful scope of the restriction, along with what suppliers, roles, {{industry}}, or competing entities the employee is restricted from performing work in or on behalf of;
- Describe the geographical limitations of the work restriction; and
- Limit the interval of the restriction to not than 365 calendar days from the date of separation (730 calendar days for medical specialists).
Employers ought to moreover current the non-compete to the extraordinarily compensated employee in writing on the very least 14 days sooner than the start of employment or the execution of the settlement.
Moreover, like when proposing a non-compete with a medical specialist, employers ought to current the following uncover to extraordinarily compensated staff concurrently with the proposed non-compete provision:
The District of Columbia Ban on Non-Compete Agreements Modification Act of 2020 limits utilizing non-compete agreements. It permits employers to request non-compete agreements from “extraordinarily compensated staff” beneath certain conditions. [Name of employer] has determined that you are a extraordinarily compensated employee. For further particulars in regards to the Ban on Non-Compete Agreements Modification Act of 2020, contact the District of Columbia Division of Employment Firms (DOES).
Restrictions Solely Apply to Workers Who Principally Work in DC
The distinctive ban utilized to agreements with any employee who performs work or potential employee whom the employer pretty anticipates will perform work in Washington, DC The Modification clarifies that the ban solely covers staff and potential staff if (i) they spend or are pretty anticipated to spend higher than 50% of their work time working in DC for the employer, or (ii) their employer is based in DC they normally “recurrently” spend a “substantial amount” of labor time in DC and not more than 50% of their work time for that employer working in a single different jurisdiction.
Sale of Enterprise Exception
The Modification preserves the carve out for non-compete agreements entered into concurrently with the sale of a enterprise. Which suggests a purchaser of a enterprise ought to nonetheless insist that the seller refrain from competing with the shopper.
Continued Security of Confidential and Proprietary Data
The Modification moreover clarifies that employers would possibly bar their staff from disclosing, using, selling, or accessing the employer’s confidential and proprietary knowledge all through or after employment, and excludes in every other case lawful “long term incentives” from the definition of “non-compete provision,” akin to bonuses, equity compensation, and completely different effectivity pushed incentives for specific individual or firm achievements normally earned over a number of yr
Moonlighting Tire Modifications
In a welcome change from the distinctive full ban, the Modification permits anti-moonlighting provisions if the employer pretty believes the floor employment would possibly (i) consequence inside the disclosure or use of the employer’s proprietary knowledge; (ii) set off a battle of curiosity; (iii) symbolize a “battle of dedication” for an employee of a greater education institution; or (iv) impair the employer’s talent to regulate to federal or District authorized tips or one different contract.
Nonetheless, employers with workplace insurance coverage insurance policies that embrace numerous of these exceptions ought to current the employee with a written copy of the provisions (i) by Oct. 31, 2022; (ii) or inside 30 days of the employee’s acceptance of employment; and (iii) any time the protection changes.
Preparing for October 2022
Absent sudden opposition from the Mayor or Congress, we anticipate the amended ban to take impression on October 1, 2022. Employers working in Washington, DC must analysis their commonplace employment agreements and employee insurance coverage insurance policies and take away all non-compete provisions that may affect staff making decrease than $150,000 yearly and appropriately deal with any moonlighting restrictions to make them in line with the amended laws Moreover, as we beforehand actually helpful, DC employers who’re considering coming into non-compete agreements with new hires or staff who do not meet the extraordinarily compensated employee threshold, must promptly accomplish that, so that the agreements keep enforceable after the Act takes impression.
Please contact considered one of many authors or one different EBG authorized skilled for assist with acceptable restrictive covenants beneath the circumstances.