A new law in the District of Columbia banning noncompete employment agreements took effect March 16. Washington DC Attorney General Karl Racine said the new law affects most workers in the district.
Noncompete clauses in employment contracts prohibit workers from pursuing employment similar to their current role, working for another employer who competes against their current employer or operating their own business. Such clauses can vary in terms of duration and geographic scope.
The office reported there are exemptions for:
However, the new law does not ban businesses from entering into agreements with employees that prevent workers from disclosing the employer's confidential, proprietary or sensitive information; the employer's client list; or the employer's trade secrets.
The law also does not prevent the seller of a business from entering a contract with the buyer of the business stating that the sellers agrees not to compete with the buyers' business.
Thanks, Robin. The SIA article is a bit misleading. The law will not become enforceable for several months.
See Washington DC Ban on Non-Competes Set to Become Law | Bryan Cave Leighton Paisner - JDSupra: Under D.C. law, the Act will not "apply," i.e., become effective and enforceable, until its costs are included in an approved budget and financial plan, which is unlikely to occur until the fall of 2021.
10 Q&As on D.C.'s Non-Compete Ban | Latham & Watkins LLP - JDSupra: The Act officially took effect on March 16, 2021, following a 30-day review in Congress. However, the Act's applicability date - i.e., the date the Act's non-compete ban begins to apply - is not yet certain. The Act will not apply until it is included in an approved budget and financial plan, which is a matter of discretion for the D.C. Mayor and Council. Typically, D.C. laws that are included in a budget are done so at the start of D.C.'s fiscal year, which is October 1. Thus, many observers are speculating that the Act's applicability date will likely be in October 2021. However, the D.C. Mayor or Council could choose to not include the Act in the next budget, or to include the Act earlier than expected upon passage of the budget in July.
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Hi Jay –
I agree 100%. I can attest from experience. In my way up the ladder so to speak, I broke every non-compete I signed – sometimes I quit, sometimes I was terminated – and when litigated, nothing happened other than exactly what you said... agreed not to contact certain clients for x amount of time, IF EVEN THAT.
In my opinion these are worthless until you get into higher level management/C-suite positions and sales positions. They can't be upheld for Staffing Coordinator/Recruiter level positions anymore.
Have a good one!
Carl Rudolph, CSP
Owner / General Manager
"Helping your company build a winning team!"
At Jay Mattern's suggestion, I will weigh in on the DC noncompete ban and on the national trend in this direction.
It used to be that a national staffing company needed only two versions of its post-termination restrictive covenants (noncompetes) for staff employees – one for California and one for the rest of the country. However, many states, publicly encouraged by the Obama Administration, have passed laws restricting various aspects of these covenants, requiring firms who use them to continually review the law.
State laws now regulate covenants based on many things, including: employee earnings, FLSA exempt status, occupation, length of restriction, compensation ("garden leave") terms, employment contract formation procedures and timing, choice of law and venue, types of customers protected, effectiveness conditioned on employment tenure, contract review periods, employee age, post-employment disclosures, student status, reason for termination, and other factors. Case law imposes other limitations not imposed by statute. And some states ban certain kinds of restrictions outright.
Nevertheless, it is worthwhile to craft and use restrictive covenants to the extent they are legally allowed and, in some cases, even beyond what you think you need. For example, most laws and courts base covenant enforcement on the goodwill that the employer paid the employee to develop with its clients, so many staffing firms think that "geographic" noncompetes are unnecessary for protecting their legitimate interests and only impose client non-solicitation covenants. However, non-solicitation is very difficult to enforce, since the employee's competition is often hard to detect and can be temporarily suspended in the face of legal action. So courts in many jurisdictions have acknowledged that reasonable geographic noncompetes are legitimate tools for protecting client non-solicitation interests.
Regardless of the applicable law, it is advisable to use legal jiu-jitsu in drafting your covenants. If you make your covenants too strict, they will not be enforceable, and your ex-employees' lawyers will green light their violations of the covenants as written. Reasonable and limited scope covenants are more enforceable and are also better for deterrence. You want the ex-employee's lawyer to confidently advise "The courts will enforce this covenant against you if you violate it."
Aside from the legal issues, there are also many practical drafting issues that can make the difference between effective covenants and useless ones.
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