NLRB Judge Finds Non-Solicitation, Non-Competition Provisions in Cold Activity Employment Agreement Protected

Quick hits

• An NLRB judge found that an employer’s non-compete and non-solicitation provisions in an employment agreement were unlawful for employees who were not supervisors or managers because they could restrain employees from engaging in activities protected by the NLRA.
• The decision applied the NLRB’s most recent framework for evaluating work rules from the perspective of an employee who is economically dependent on the employer.
• The decision provides an opportunity for the NLRB to review non-compete and non-solicitation agreements.

IN JO Mory, Inc., ALJ Sarah Karpinen in the 25th District of the NLRB found that non-compete and non-solicitation provisions in an employment agreement that required employees to sign away chilled employees’ rights to engage in unionization and other protected concerted activity under section 7 of the NLRA. The ALJ ordered the employer to rescind the challenged provisions and notify current and former employees subject to the same that the requirements of the provisions were no longer in effect.

The decision comes a year after the NLRB’s General Counsel issued a memorandum stating its view that «except in limited circumstances» the «promulgation, maintenance, and enforcement» of noncompetition covenants in employment contracts and severance agreements violate Sec. 8(a)(1) of the NLRA, which makes it an unfair labor practice for an employer to «interfere with, restrain, or coerce employees in the exercise» of Section 7 protected activity.

of NO Mory the case involved a commercial heating, ventilation and air conditioning (HVAC) technician who was a «salt»—a union organizer who takes a non-union job with the intent of organizing a workforce. The employer argued that it had fired the employee after learning that the employee had falsely claimed to have previously worked at a non-union shop.

In the decision, the ALJ found that the employer unlawfully discharged the employee for engaging in NLRA-protected activity, including «salting» activity, and the ALJ ordered that the employee be reinstated with back pay and other compensation. complete.

A key part of the decision was the ALJ’s finding that three challenged provisions in the employee’s employment agreement regarding non-competition and non-solicitation terms were unlawful under the NLRB’s employee-friendly standard for evaluating the employer’s work rules and policies. approved in its decision of August 2023 in Stericycle, Inc.

Assessment of Work Rules

According to the framework approved in Stericycle, the NLRB will assess whether a facially neutral work rule or policy can reasonably be construed as coercive «from the perspective of an employee subject to the rule and economically dependent on the employer.» If this burden is met, the NLRB will find the rule unconstitutional «even if a contrary, less restrictive interpretation of the rule is also reasonable.» An employer may rebut that presumption by showing that «the rule advances a legitimate and substantial business interest» that the employer could not advance «with a more narrowly tailored rule.»

IN NO Mory case, the ALJ evaluated three challenged provisions of the employee’s employment agreement:

• a non-solicitation provision intended to prevent «piracy» by barring employees during their employment and for twenty-four months after separation from «solicitation.»[ing]encourage[ing]or effort[ing] to convince any other employee of [the] The employer leaves the job [the] The employer”;
• a non-compete provision that prohibited former employees for twelve months after separation from «directly or indirectly» engaging in or working for «any other business similar to or competitive with [the] Employer’s Business”; AND
• a provision that required the employee to report “any and all offers or solicitations of employment that [the] The employee may receive from third parties” and this did not include restrictions on trade unions or other protected activities.

ALJ Decision

The ALJ found that all three challenged provisions prevented employees from engaging in Section 7 protected activity from the perspective of an “employee who is dependent on [the employer] free of charge.” In particular, the ALJ expressly referred to the potential to chill «salting» activity, which the ALJ found to be a protected activity under prior NLRB precedent.

Specifically, the ALJ stated that the provisions “would prevent a reasonable employee from working for other employers in the area as a union salt or recruiting others to do so for fear of being accused of inducing other employees to leave, being forced to tell their supervisors about job offers they receive or have [the employer] find out they are working for one of her competitors.”

The ALJ further determined that the provisions “unlawfully restrict[ed] the activity of current and former employees» because «employees’ knowledge that they will not be able to work for a competitor in their geographic area if they are fired or leave will necessarily affect their behavior before and after leaving «. [the employer’s] hire.»

Finally, the ALJ found that the employer did not provide evidence that the challenged provisions advanced «any legitimate business interest» and that it was, therefore, «unnecessary» to conduct the analysis under the second part of Stericycle standard However, the ALJ stated that even under the stated goals of the provisions protecting the employer’s rights under the agreement preventing “piracy,” other unchallenged provisions, such as those protecting confidential and proprietary information, addressed these concerns.

In contesting the provisions of the employment agreement as illegal in NO Mory, the ALJ distinguished employment policies found lawful by the NLRB in other cases where the restrictions did not «broadly prohibit» employee conduct. The ALJ did not conclude that the non-compete and non-solicitation restrictions are generally unlawful under the NLRA.

The ALJ ordered the employer to rescind all three provisions and ordered the employer to “submit each of its current and former employees who have been subject to the same or similar agreement. [notice] that these provisions are repealed and released from any obligation in their implementation.»

Get the main

The decision in NO Mory is significant for employers in that it highlights the NLRB’s new application Stericycle framework for evaluating workplace rules, particularly focusing on looking at a work rule from the perspective of an employee who is economically dependent on an employer.

The decision also signals the possibility of expanded NLRB review of non-compete and non-solicitation agreements (and other restrictive covenants) as potentially chilling protected concerted activity under section 7 of the NLRA, if timely exceptions to the ALJ’s decision are made. .

Regardless, this decision traces the NLRB’s General Counsel’s increased interest (publicly announced in 2023) to pursue complaints about restrictive covenants, such as non-compete agreements. Specifically, on May 30, 2023, the NLRB General Counsel released her memorandum to all regions communicating that “[e]except in limited circumstances … the provision, maintenance and implementation of [non-compete] agreements violate section 8(a)(1) of [NLRA].” In that memorandum, the NLRB’s General Counsel advocated for then-pending enforcement Stericycle standards for non-compete agreements.