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Nation’s Capital Moves to Ban Non-Competes

Nation’s Capital Moves to Ban Non-Competes Background Image

Last week, the mayor of Washington, D.C. signed into law the “Ban on Non-Compete Agreements Amendment Act of 2020.” The “Ban” does exactly what its title says it will do, and then some: it bans agreements that would restrict any D.C. employee’s employment after the end of their instant employment or (interestingly) simultaneous with it, except in connection with the sale of a business. Yes, you read that right — employers may not prohibit their employees, even while still employed, from working for someone else or operating their own business.

The D.C. law continues a trend in which many states are making it increasingly difficult to implement employment-related non-competes in their jurisdictions. And, as my colleagues and I reported recently in a presentation there is also the possibility that imposing limitations on non-competes will be a focus of federal legislation or other executive action.

In light of the new D.C. ban, employers with a presence in the capital will want to closely consider choice of law issues in any agreements expected to be entered into this year. The law, which is expected to take effect after its transmission to Congress for a 30-day review period, in which it could (but is unlikely to) be rejected, generally applies to any employer operating in the District, with the exception of the governments of the District or the United States. Certain categories of employees are also excluded, such as “casual babysitters.” “Medical specialists” also receive nuanced treatment under the statute.

Multi-state employers have long been on alert regarding the state-specific considerations necessary in drafting non-competition agreements for their workforces. Although the Ban acknowledges the legality of non-competition provisions in connection with the sale of a business, as well as the existence of “otherwise lawful” provisions restricting the disclosure of employers’ trade secrets or other categories of confidential information, employers will need to carefully consider whether these exceptions apply. Notably, the new D.C. law also establishes a private cause of action for a violation of it (e.g. asking an employee to enter into a non-competition agreement that is subject to its prohibition).

Whether D.C. will be a harbinger of what is to come in other states on non-competes is now the question.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.