December 8, 2022, Vol. 15
by Marc Campsen
The District of Columbia’s New Rules Against Non-Competes
Way back in Blawg Vol. II, I addressed the anticipated prohibitions on covenants not to compete, e.g., non-competes, in Maryland. In a follow up, this post addresses the October 2022 law in the District of Columbia severely limiting non-competes.
On October 1, 2022, the “Non-Compete Clarification Amendment Act of 2022” (the “Act”) took effect in the District. The Act expressly prohibits employers operating in the District from requiring, or even requesting, a “covered employee” enter into an agreement containing a non-compete provision. Generally, the Act does not apply to: (i) District government or United States government employees; (ii) partners in a partnership; and (iii) the seller of a business.
The Act defines “non-compete provision” as a “provision in a written agreement or a workplace policy that prohibits an employee from performing work for another for pay or from operating the employee’s own business.” A “covered employee” is any employee who is not “highly compensated” (defined by the Act) and (i) spends more than 50% of work time for the employer in the District, or (ii) whose employment for the employer is based in the District and regularly spends a substantial amount of his or her work time in the District and not more than 50% of work time for the employer in another jurisdiction.
The “highly compensated” employee exception is triggered by an employee who is reasonably expected to earn from the employer in a consecutive 12-month period or who has earned from the employer in the consecutive 12-month period preceding the date the non-compete provision is to begin a minimum of $150,000.00. If the employee is a “medical specialist,” e.g., a physician, the threshold amount is raised to $250,000.00. Employers must be sure to include “bonus or cash incentives,” “commissions,” “overtime premiums,” “vested stock,” and other payments, in addition to salary when determining whether an employee’s compensation will exceed the minimum monetary threshold triggering the exception. Non-competes for highly-compensated employees, however, are not unqualified. The agreements must set forth the scope of the restriction and the geographical limitations. The temporal duration after separation is limited to 365-days for non-medical specialists and 730-days for medical specialists. The terms of the non-compete must be presented to the employee in writing at least 14-days before employment commences.
In the new reality of hybrid/remote work, the second prong of the “covered employee” definition is now very relevant and creates numerous scenarios that can confuse employers. For example, a non-highly compensated employee that works 3 days in the District in the employer’s office and 2 days from home in Maryland is covered. Similarly, an employee that works 2 days in Maryland in the employer’s office and 3 days from home in the District is also covered. By contrast, an employee that works remotely full-time from home outside the District is not a “covered employee” even if the employer is located in the District. Employers instituting return-to-work policies with a hybrid component need to understand this new dynamic.
For more information on the District’s new non-compete law, or non-competes in your jurisdiction, and how to draft non-competes in compliance with the applicable law in your jurisdiction, please contact me.
About The Author:
Marc A. Campsen is an attorney at Wright, Constable & Skeen, LLP, where he focuses his practice primarily on litigating employment and business law matters. He is recognized as a Maryland Super Lawyer.
Read Marc’s bio | Email | Phone: 410-659-1343
DISCLAIMER: The materials available on this blog are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to your particular issue or problem.