We have written recently about state legislative proposals to significantly restrict employers’ use of non-compete agreements with employees and about court decisions that have limited the enforcement of non-competes. Many states have proposed or enacted strict limitations on employers from requiring non-compete provisions as a tool to protect their legitimate business interests. And, as this week’s companion article explores, a California representative introduced legislation in late August, The Restoring Workers’ Rights Act of 2022, that would amend the Fair Labor Standards Act to ban non-compete agreements for any employee covered by overtime provisions in the FLSA.
Similarly, a July 2021 Executive Order from President Biden urged the Federal Trade Commission to take action to “curtail the unfair use of non-compete clauses” that limit employee mobility. The clear trend has been to eliminate non-competes or to limit their applicability to very narrow circumstances.
However, the District of Columbia recently stepped back from the brink of a proposed ban on virtually all non-compete clauses – the Ban on Non-Compete Agreements Amendments Act of 2020, which was to take effect in October 2021. D.C. would have prohibited non-compete agreements for nearly all employees “who perform work in the District on behalf of an employer,” with limited exceptions such as for practicing physicians earning at least $250,000 annual salary. One of the most concerning provisions of that proposed legislation was that it would even prohibit an employer from restricting an employee from holding a second job.
Thankfully, after extending the effective date to consider public comment/outcry, the D.C. City Council recently rolled back several of the restrictions in the proposed law after considering significant opposition by the D.C. Chamber of Commerce, the Washington Nationals baseball team, and other groups. While the changes are not final, they would limit the non-compete ban to employees earning less than $150,000 per year (while retaining the $250,000 income threshold for physicians).
The other more significant change would clarify that a covered employee is one who spends at least half of his or her work time working in the District of Columbia for the employer, or who spends a substantial amount of work time in the District of Columbia and not more than half of their work time for that employer working in another jurisdiction. This clarification was critical because many D.C. employers have employees who often work remotely from the Maryland or Virginia suburbs or work for employers with multiple locations throughout the D.C. metropolitan area.
After significant pressure from business interests, employers appear to have clawed back the right to use non-competes, at least for highly compensated employees. This push and pull about the D.C. non-compete ban is indicative of broader tensions over balancing employer business interests v. employee mobility. We will continue to update you about these legislative and judicial developments so that you can revise your employment policies and protections accordingly.
Paul R. Monsees is a partner and litigation lawyer with Foley & Lardner LLP. He has extensive experience analyzing, litigating and resolving complex commercial disputes including to represent clients in matters concerning insurance and reinsurance relationships, employment discrimination and related issues, internal investigations, breaches of fiduciary duty, corporate and law firm successor liability, misappropriation of trade secrets, breach of non-disclosure and non-solicitation agreements, data breach issues, breach of medical practice management contracts,...
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