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A fight is brewing at the John A. Wilson Building over the future of the District’s new law banning non-compete agreements that has yet to even take effect. On one side are advocates and workers who say they’ve been harmed by non-compete agreements, which restrict a worker’s ability to hold simultaneous employment or leave their current employer and work for a competitor or start their own business. They want the law to go into effect as written as soon as possible. On the other are representatives of various industries seeking to significantly change the law or delay its effective date and the Councilmember in whom they seem to have found a receptive ear, Ward 2’s Brooke Pinto.
One of those who is anxiously awaiting the law to take effect is Brendan Smullen. Smullen, a yoga instructor, felt compelled to sign a non-compete agreement this January with a chain of small yoga studios in the District. He was teaching most of his classes at the chain, and he didn’t feel that he could risk losing that income. The agreement prevented him from working for other studios or on his own with clients in the District, and he soon realized that with the agreement in place, he was unable to earn enough to sustain himself.
“Anything that’s a semblance of yoga, I couldn’t teach it,” says Smullen, describing the non-compete clause, which he called “a control tactic.” He eventually relocated to the West Coast, in large part because he was unable to make a living in the District with his non-compete agreement in place.
In the middle of the debate is At-Large Councilmember Elissa Silverman, whose office spearheaded the passage of the law—the Ban on Non-Compete Agreements Amendment Act of 2020—and who may have inadvertently opened the door to this new push from industry leaders when she introduced an amendment to preserve workplace laws meant to prevent conflicts of interest and proposed delaying the date when the law would take effect from the fall to next spring while that amendment is worked out.
Both sides were in full voice at a July 14 virtual hearing of the Committee on Labor and Workforce Development, which Silverman chairs. Witnesses disagreed especially about one core point: whether employers’ other tools to prevent disclosure or use of sensitive information beyond non-compete agreements were sufficient.
“These goals [of protecting trade secrets and incentivizing research and development] can already be achieved through … trade secrets laws, non-disclosure agreements, and copyright,” said Daniel Perez, vice president of organizing for the Nonprofit Professional Employees Union.
Federal and state trade secrets laws give businesses a cause of action for the misappropriation of “trade secrets,” usually defined as information that the business has taken reasonable steps to keep secret and where the business derives actual value from such secrecy. Non-disclosure agreements, like non-competes, are a contractual provision employees are often asked to sign, in which they promise not to disclose trade secrets or other confidential information gained during employment. Legal experts say NDAs are generally found enforceable by courts as long as they limit themselves to protecting actual confidential business information. (Broader reaching NDAs that forbid employees from saying anything critical of an employer and NDAs included in settlements of sexual harassment lawsuits have gained notoriety as a result of the #MeToo movement and are being banned in many states and/or may be unenforceable already.)
However, “while there’s certain obligations [under an NDA] for them not to share that information, that doesn’t mean that they don’t unwittingly do so if they’re hired by a competitor,” said Betsy Philpott, general counsel for the Washington Nationals. Philpott raised this concern specifically because the Nationals employ scouts who are asked to sign agreements to not scout for another team simultaneously. She also noted that under the model contract included in Major League Baseball’s collective bargaining agreement with its players, players are barred from simultaneous employment with a competing baseball team and worried that the non-compete ban as written would prevent the Nationals from enforcing these contracts.
The original non-compete ban passed the Council in December 2020 on a 12-0 vote with one recusal, and was signed by Mayor Muriel Bowser this January. It has been called the broadest ban on non-compete agreements of any jurisdiction in the U.S. With very few exceptions, it makes workplace rules and contract terms that prohibit either simultaneous or subsequent employment unenforceable. (The most notable exception is for doctors earning over $250,000 a year.) It gives employees a cause of action to challenge such terms and rules and establishes penalties, including fines of up to $2,500 as well as restitution to employees, for employers who ask their employees to sign or seek to enforce such agreements signed after the effective date of the law, or who don’t provide notice of the law to or retaliate against employees on the issue of non-competes.
While the non-compete ban became law in March, it was originally slated to become effective only once funded—in other words, after the FY 2022 budget is approved this fall. However, after the law’s passage, Silverman was contacted by universities and others who, she tells City Paper, were concerned the law would stop them from identifying and preventing conflicts of interest among employees—for example, admissions staff simultaneously consulting for students on their applications or researchers accepting federal research grants and then taking the knowledge gained to a private employer. A recent Washington Lawyer article made a similar point about the ability of law firms to enforce their D.C. Bar Association-mandated conflicts rules.
Silverman drafted an amendment to clarify that employers may still enforce rules to prevent such “bona fide conflicts of interest” consistent with the non-compete ban. The draft text of the proposed amendment—yet to be formally introduced, but shared in advance of Wednesday’s hearing—also specifies that employers may still ban employees not only from disclosing confidential information or trade secrets to a subsequent employer but also from using such information themselves.
At the same time as Silverman was working on this text, however, Pinto, who twice voted for the non-compete ban when it was first passed, had also been working on amendments to the law with representatives from the D.C. Chamber of Commerce and associations representing higher education, broadcast journalism (who worry about news anchors simultaneously working for multiple channels), and other industries seeking exemptions from the law. Pinto prepared her own draft language which she shared ahead of Wednesday’s committee hearing, and her proposal is much further reaching.
Pinto’s proposed changes would preserve employers’ ability to:
- Prohibit any employee with access to a broad array of confidential information, including client and customer lists, intellectual property, etc. from simultaneously working for a competitor or opening their own business where they would be likely to use that information, and
- Prohibit employees with access to such confidential information from subsequently working for a competitor for up to six months after leaving their former employer, as long as 1) the employee was earning more than $80,000/year in total compensation for the former employer, and 2) the former employer continues to pay their full salary for those six months, less any signing bonuses and up to a cap of $150,000.
It also creates special carve outs for full-time faculty of higher education institutions and a category that seems meant to single out broadcast journalists, but sweeps much broader to include any employee who is uniquely identified with their employer or its brand. These categories of employees may also be prohibited from simultaneous employment with a competitor or subsequent employment subject to the above.
Silverman says she didn’t hear much at the hearing to make her think broader changes to the law are needed. “The concerns about simultaneous employment, we thought we addressed with the bona fide conflicts of interest [amendment]—there were a few examples that I want to examine whether what we did is enough. On post-employment, it’s really about … employees with access to proprietary information … I’ll examine those arguments again, [but] I found those less compelling.” However, she reiterated her commitment to delaying the law’s effective date until April 2022.
Advocates who cheered the passage of the non-compete ban are dismayed by some of the proposed carve outs and by the proposed delay. “Non-competes are a manifestation of the power imbalance between employers and employees, and the longer they’re not prohibited, the more detrimental it is to employees’ ability to find work where they want to find work,” says Danny Katz, senior counsel with the Washington Lawyers’ Committee for Civil Rights and Urban Affairs.
Smullen, the yoga teacher, who hopes to one day return to the District, agrees. When he learned about the proposals to delay the law’s effective date to spring of 2022, there was a long pause. “It’s just upsetting,” he finally said, “like I had in my head a timeline of ‘this will go into effect, and from there enforcement,’ and that’s just pushing things back a ways.”
Pinto says she shares these advocates’ sense of urgency due to the need to provide clarity to businesses preparing to adapt to the non-compete ban. It’s why she may be prepared to act on her own. “My goal is to work with Councilmember Silverman in the immediate term to get this moved forward, but we do have the language prepared,” she says, hinting at a possible separate bill if the two sides are unable to reach agreement.