Another Day, Another Ban on Non-Compete Agreements: How Mayor Bowser’s Ban on Non-Competes May Affect Your Business

Employers have traditionally used non-compete agreements as a tool to restrict employees from taking their business practices to industry competitors. However, today, non-compete agreements are rarely enforced. In fact, many states have enacted laws that essentially restrict the use of non-compete agreements. D.C. Mayor Muriel Bowser signed a ban on non-compete agreements on January 11, 2021, that is projected to go into effect on April 1, 2022. 

What Restrictions Will the New D.C. Law Put on Non-Competes?

The D.C. non-compete ban will cover most employment relationships and applies to non-compete restrictions during and after employment.[1] Here is what D.C. employers are guaranteed from the new non-compete laws:

  • The Act Is Not Retroactive – Non-compete agreements entered into before April 1, 2022, will not be affected by the new D.C. non-compete laws. However, many non-compete agreements are still unenforceable in D.C. as restraints on trade or commerce.[2] Although uncommon, D.C. Courts have upheld non-compete agreements as enforceable.[3]

  •  Employers Must Provide Notice of The New Law – Employers must properly notify all employees about the new non-compete laws under the risk of administrative and monetary fines.[4]

  • Non-Disclosure Agreements are Valid - Employers may still use agreements that restrict an employee from disclosing confidential, proprietary, and sensitive information, including the business’s trade secrets.[5]

  • There Are Significant Proposed Amendments - The D.C. Council is currently considering proposed amendments to the non-compete ban. The most significant amendments include:

    •  A Bona Fide Conflict of Interest Provision – If adopted, this provision would allow employment contracts to prohibit employees from accepting money or things of value during employment contingent on the employer’s reasonable belief that it would cause employees to either engage in unethical business conduct or violate applicable laws and rules.[6]  

    • Amended Moonlighting Provision – Some D.C. employers currently prohibit their employees from moonlighting, which is the act of working a second job. Mayor Bowser’s ban on non-compete agreements currently includes a hard prohibition against restricting employees’ right to moonlight.  However, the D.C. Council is considering a proposed amendment that would allow employers to impose moonlighting restrictions for certain employees that either have an extensive amount of access to the employer’s confidential information or are uniquely identified with the employer or its brand.[7]

How does D.C.’s Law on Non-Compete Agreements Differ from Virginia and Maryland?

While D.C. is set to provide the strictest limitations to non-compete agreements in the DMV area, Virginia and Maryland have their own restrictions on non-compete agreements. Both states generally restrict the enforceability of non-compete agreements to those that are necessary to an employer’s business interests and no more restrictive to an employee than is essential and altogether ban the use of non-compete agreements on low-wage workers. [8]

 

In Virginia, non-compete agreements must meet these conditions in order to be enforceable: [9]  

  •  It is necessary to protect an employers’ legitimate business interest 

  •  It will not oppress an employee’s ability to find another job or make an income 

  • It does not violate Virginia public policy 

 

In Maryland, non-compete agreements must meet these conditions in order to be enforceable: [10]

  • The employer has a legally protected interest

  • The scope and duration of a restriction is reasonably necessary to protect the employer’s interest

  • The terms do not subject employees to unjustified hardship

  •  The terms do not violate Maryland public policy 

 President Biden’s Executive Order Relating to Non-Competes

On July 9, 2021, President Biden signed an Executive Order that instructs the Chair of the Federal Trade Commission (FTC) to work with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the FTC Act to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility”.[11] The impact of this Order currently remains unclear as the Order itself does not ban non-competes and the FTC has not yet promulgated the rule.[12] Furthermore, the Order creates new questions regarding the scope of the FTC’s rulemaking authority because oversight of non-competes has traditionally been left to the states, and many states have already implemented their own laws restricting employer-employee non-compete agreements. 

 

How Can We Help?

If you currently have a non-compete clause in your employment contract, contact us at Shannon@taylorlawdc.com so we can help you determine your best and most effective alternatives!

 

[1] DC Joins Maryland and Virginia in Passing the Most-Restrictive Ban in the DMV Area Regarding Non-Compete Clauses, SmithCurrie, February 16, 2021, https://www.smithcurrie.com/publications/client-alerts/dc-joins-maryland-and-virginia-in-passing-the-most-restrictive-ban-in-the-dmv-area-regarding-non-compete-clauses/.

[2] D.C. Code § 28–4502.

[3] Non-Compete Agreements may be enforceable if: (1) The restrictions are reasonable as to trade within D.C., (2) The restrictions are only what is necessary to protect the employer’s business interest, (3) The agreement did not go against the public policy of D.C. Deutsch v. Barsky, 795 A.2d 669 (2002) (citing Godfrey v. Roessle, 5 App. D.C. 299 (1895)).

[4] Garrett Buttrey & Henry A. Platt, Washington, D.C. Prepares to Implement Ban on Non-Compete Agreements, Saul Ewing Arnstein & Lehr LLP, May 21, 2021, https://www.jdsupra.com/legalnews/washington-d-c-prepares-to-implement-1766755/.

[5] Buttrey & Platt, supra note 4.

[6]  Carson H. Sullivan et. al., Employers Take Note: D.C. Non-Compete Applicability Act Delayed until April 2022, Paul Hastings, August 18, 2021, https://www.paulhastings.com/insights/client-alerts/employers-take-note-d-c-non-compete-applicability-act-delayed-until-april.

[7] Sullivan et. al., supra note 6. 

[8] Supra note 1.

[9] Virginia Law on Non-Compete Agreements, Erlich Law, February 16, 2020, https://www.erlichlawoffice.com/virginia-law-on-non-compete-agreements.html.

 [10] Fort Lauderdale Non-Compete Agreements: Florida Law Versus Maryland Law, Maverick Law Firm, July 26, 2020, https://www.mavricklaw.com/blog/fort-lauderdale-non-compete-agreements-florida-law-versus-maryland-law-contract-interpretation-and-reasonableness-tests/.

[11] Amit Bindra, What Does Biden’s Non-Compete Executive Order Do?, The Prinz Law Firm, February 16, 2022, https://www.prinz-lawfirm.com/our-blog/2021/july/what-does-biden-s-non-compete-executive-order-do/; see also Kevin Adam et. al., Analysis: FTC Encouraged to Ban or Limit Non-Compete Agreements in July 9, 2021 Executive Order; Breaks With Tradition, And Follows Trend of Heightened Antitrust Focus on Labor Markets, JDSUPRA, July 20, 2021, https://www.jdsupra.com/legalnews/analysis-ftc-encouraged-to-ban-or-limit-5523406/.

[12] Bindra, supra note 12. 

Priya NairTaylor Law PLLC