Welcome back,
Last year I discussed a law in Ontario, Canada, that banned non-competes for employees. At the time, I predicted the US would follow suit. Last week the District of Columbia became the first jurisdiction in the US to pass a law against non-compete clauses for employees.
This week we will be discussing the impact of this law.
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Onwards and upwards,
Liam
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Background
Last week Mayor Muriel Bowser of the District of Columbia officially signed the Non-Compete Act making non-competes illegal for employees starting on October 1st, 2022.
The law does not have a retroactive effect, meaning courts won't stop enforcing existing non-competes; after October 1st, employers can't have them in employment contracts.
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The Law
The law in Ontario, Canada, completely banned all non-competes for employees. The only exception was for non-competes tied to the sale of a business where the person bound by the non-compete was receiving profits from the sale. This made sense as you don't want to buy a bakery just for the baker to open a new one next door.
The law in DC is less restrictive and only bans non-competes for those making over $150,000. This threshold will be inflation-adjusted starting in 2024.
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Takeaways
Many of our readers work in the high-tech, high-growth startup space. This is an industry where non-competes are essential since you could have any worker take your unique innovation and start a competitor or sell it to another player in the market.
If the standard in the US becomes to limit the use of non-competes based on salary, this will force you to rethink your business in two tiers; those who are highly paid and given non-competes and those who are low paid and disposable. It is wise to start thinking of your employees this way and to understand what information you are comfortable sharing with someone who can walk away at any time and use that information however they want. Earlier in the game, you will need to start building your inner circle, paying them more and locking them in. Maybe these laws change your hiring strategy; we've seen companies focus on freelancers, gig workers and large, cheap, distributed workforces; this could cause you to focus instead on a small, highly qualified team.
It is still the early days of this law change, but it's essential to recognize this coming change as it will fundamentally alter your relationship with your employees.
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This newsletter (or any other content provided by Law4Startups) is not legal, financial, or tax advice. We are simply providing legal information and collating news from around the world. We recommend that you consult an attorney before making any legal decisions. We do not make any representations and take no responsibility for your actions based on this information.
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