After years of delays and anticipation, the District’s comprehensive ban on non-compete agreements went into effect on October 1, 2022. Employers, including nonprofits, have often used non-compete agreements and policies to prohibit their employees from working for competing businesses both during and after their tenure with the organization. Those agreements and policies are now generally illegal in the District of Columbia.
Specifically, the new non-compete ban prohibits the vast majority of agreements, contracts, and/or policies either (1) restricting a D.C. employee’s ability to work for another entity for pay or (2) restricting a D.C. employee’s ability to operate their own businesses. The bans apply to both parallel employment (i.e. competing employment that occurs at the same time as your employee’s current job) and subsequent employment (i.e. jobs that former employees take after they leave your organization). The bans apply even when the parallel or subsequent employment competes directly with your organization.
A key exemption to the ban is for “highly compensated” employees making more than $150,000 per year (or $250,000+ per year for medical specialists). Employers can still enter into non-compete agreements with these individuals if they abide by new substantive and procedural requirements.
Nonprofits should take the following steps to ensure they are complying with the new non-compete ban:
• Review & Prohibit New Non-Compete Policies and Agreements: The non-compete ban does not affect agreements and contracts entered into before the law’s October 1, 2022 effective date. However, nonprofits must ensure that they do not enter into new non-compete agreements after October 1 and that they immediately revise any employment policies (e.g. in employee manuals) that restrict parallel or subsequent employment.
• Review Exemptions and Requirements for Highly Compensated Employees: If your nonprofit wants to continue using non-compete agreements for highly compensated employees, review the law’s requirements regarding notices, term, scope, and other important limitations.
• Continue to Protect Confidential and Proprietary Information: Employers can still prohibit employees from “[d]isclosing, using, selling, or accessing the employer’s confidential employer information or proprietary employer information.” “Confidential employer information” is defined as “information owned or possessed by the employer which is not available to the general public and which the employer has taken reasonable steps to ensure is protected from improper disclosure,” and “proprietary employer information” is defined as “information unique to an employer that is compiled, created, or solicited by the employer, including customer lists, client lists, and trade secrets.” Employers can even prohibit parallel employment if they reasonably believe the parallel employment will result in disclosure of confidential or proprietary information or otherwise “[c]onflict with the employer’s, industry’s, or profession’s established rules regarding conflicts of interest.” These exceptions address a key underlying function of non-compete agreements and give employers the option of placing such restrictions in other employment policies and/or agreements. Note that additional notice requirements are triggered if employers adopt the anti-moonlighting (i.e. parallel employment) requirements related to confidential information, proprietary information, and/or conflicts of interest mentioned above.
For more information, read our legal alert, “Most Non-Compete Agreements Banned in the District of Columbia” and watch our webinar, “Understanding D.C.'s New Ban on Non-Compete Agreements,” covering this topic.