NLRB Judge Rules Non-Solicitation and Non-Compete Clauses in Employment Contracts Suppress Protected Activities

On June 13, 2024, an Administrative Law Judge (ALJ) of the National Labor Relations Board (NLRB) ruled that overly broad non-compete and non-solicitation clauses in employment contracts violated employees’ labor rights. This is perhaps the first time the NLRB has ruled that such clauses violate the National Labor Relations Act (NLRA).

Quick Hit

  • NLRB judges have held that employers’ non-competition and non-solicitation clauses in employment contracts are unlawful as to employees who are not supervisory or managerial because they may prevent employees from engaging in activities protected by the NLRA.
  • The decision applied the NLRB’s latest framework for evaluating work rules from the perspective of employees who are economically dependent on their employers.
  • This decision provides an opportunity for further scrutiny of non-competition and non-solicitation agreements by the NLRB.

in JO Mory Co., Ltd.ALJ Sara Karpinen of NLRB Region 25 found that non-competition and non-solicitation clauses in employment agreements that employees were required to sign suppressed employees’ rights to participate in labor unions and other protected concerted activities under NLRA Section 7. The ALJ ordered the employer to remove the clauses at issue and to notify current and former employees covered by the same clauses that the clauses’ requirements were no longer in effect.

The decision came a year after the NLRB’s General Counsel issued a memorandum expressing its opinion that “except in limited circumstances,” the “offering, maintaining, or enforcing” of non-competition covenants in employment or severance agreements violates Section 8(a)(1) of the NLRA, which states that it is an unfair labor practice for an employer to “obstruct, restrain, or coerce an employee from engaging in any activity protected by Section 7.”

of E. Molly The case involved a commercial heating, ventilation, and air conditioning (HVAC) technician who was a “salt,” or a union organizer who worked in a non-union job for the purpose of organizing the workforce. The employer alleged that it had fired the employee after learning that he had falsely represented that he had previously worked in a non-union job.

In this decision, the ALJ found that the employer wrongfully fired the employee for engaging in NLRA-protected activity, including “salting” activities, and ordered the employer to reinstate the employee with back wages and other compensation.

A key part of the ruling was the ALJ’s determination that the three challenged clauses in the employees’ employment contracts related to non-competition and non-solicitation terms that violated the NLRB’s employee-friendly standard for evaluating work rules and policies adopted in its August 2023 ruling. Stericycle Co., Ltd..

Evaluation of work regulations

Under the framework adopted in 2015 Stealth CryThe NLRB evaluates whether a facially neutral work rule or policy could reasonably be construed as coercive “from the perspective of employees who are subject to the rule and who are economically dependent on the employer.” If that burden is met, the NLRB will find the rule presumptively unlawful “even if an opposite, less coercive interpretation of the rule would also be reasonable.” An employer can rebut that presumption by showing that “the rule promotes a legitimate and significant business interest” that “a more narrowly tailored rule” could not promote.

In E. Molly In this case, the ALJ evaluated three disputed provisions in the employee’s employment contract.

  • The non-solicitation clause is intended to prohibit employees from “pirating” during the term of their employment and for 24 months after they leave the “solicitation.”[ing],Encourage[ing]or attempt to[ing] Persuade other employees [the] The employer: [the] Employer”;
  • A non-compete clause prohibiting a former employee from “directly or indirectly” engaging in or working for any other similar or competing business for 12 months after separation from employment. [the] Employer’s Business”
  • If an employee is offered or solicited for employment, [the] Employees may receive benefits from third parties” and contained no restrictions on trade unions or other protected activities.

ALJ Decisions

The ALJ found that all three clauses at issue prohibited employees from engaging in activities protected by Section 7 in terms of their “employment-dependent status.” [the employer] Notably, the ALJ explicitly mentioned the possibility of chilling “salting” activity, which the ALJ determined was protected activity under prior NLRB precedent.

Specifically, the ALJ stated that the provision “would deter a reasonable employee from working as a union salt for other employers in the area, or from soliciting others to do so, for fear of being accused of causing other employees to quit, or being forced to tell off or report a job offer to a supervisor.” [the employer] We find out they work for a competitor.”

The ALJ further found that these provisions were “unlawfully restrictive.”[ed] The lawsuit states that the activities of current and former employees “influence employee behavior” because “the knowledge that if an employee is fired or resigns, they will no longer be able to work for a competitor in their local area inevitably influences their behavior before and after they resign.” [the employer’s] “Hire.”

Finally, the ALJ found that the employer had not presented evidence that the provision at issue furthered a “legitimate business interest” and therefore found it “unnecessary” to conduct an analysis under Part II. Stealth Cry However, the ALJ noted that other unchallenged provisions address these concerns, such as provisions protecting confidential and proprietary information, even under the provision’s purpose of protecting employers’ rights under contracts and preventing “piracy.”

In determining that the disputed employment contract clause is illegal, E. MollyThe ALJ distinguished this from employment policies that the NLRB has found to be lawful in other cases that did not “broadly prohibit” employee conduct. The ALJ did not conclude that non-compete and non-solicitation restrictions are generally illegal under the NLRA.

The ALJ ordered the employer to strike down all three clauses and “enforce all current and former employees covered by the same or similar contracts.” [notice] These provisions are hereby repealed and you are relieved of any obligations arising therefrom.”

Key Takeaways

The verdict E. Molly For employers, it is important in highlighting the NLRB’s new application. Stealth Cry A framework for evaluating workplace rules, with a specific focus on examining work rules from the perspective of employees who are economically dependent on their employers.

The decision also suggests that the NLRB may expand its scrutiny of non-compete and non-solicitation agreements (and other restrictive covenants) because they have the potential to chill concerted conduct protected by Section 7 of the NLRA if an ALJ’s decision is timely challenged.

In any event, this decision is in keeping with the NLRB General Counsel’s increased interest (publicized in 2023) in pursuing complaints related to restrictive covenants, such as non-compete agreements. Specifically, on May 30, 2023, the NLRB General Counsel issued a notice to all territories stating, “[e]Offering, maintaining, and enforcing, except in limited circumstances, [non-compete] The agreement: [NLRA]In the memo, the NLRB’s counsel wrote that the Stealth Cry Standard non-compete agreements.

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