Most of our clients in Utah have never heard of the National Labor Relations Act (the “Act”) or the National Labor Relations Board (“NLRB”) that enforces the Act. This is because the Act, which was passed by Congress nearly 100 years ago, was created primarily to ensure the rights of employees to form a union. Thus, employers who are not unionized are typically unfamiliar with the Act and have little or no experience with the NLRB. However, the Act applies to all employers – it protects not only the rights of employees to unionize, but also the rights of employees to engage in “concerted activity,” which, in its most basic sense, protects the right of employees to discuss or complain about the terms and conditions of their employment with each other or with management. In the coming months, we hope to educate all employers and our clients (especially those not familiar the Act) about the ways in which the NLRB is seeking to broaden the scope of “concerted activity” to advance a uniquely union-friendly agenda and expand the rights of employees. We are calling this series, “The National Labor Relations Act – The Most Dangerous Law You’ve Probably Never Heard Of.”
Our first article in this series involves the NLRB’s attempts to curtail the use by employers of covenants not to compete and employee non-solicitation agreements. Many of our clients use so-called “non-compete” agreements to temporarily restrict competitive acts of a departing employee to protect the client’s business from what can be unfair competition. However, the General Counsel for the NRLB, Jennifer Abruzzo, announced last year that non-compete agreements violate Section 8 of the National Labor Relations Act because they “chill” employees from taking key concerted actions to secure better working conditions, such as threatening (or carrying out a threat) to resign as leverage to demand better employee working conditions.
On September 1, 2023 the NLRB’s Regional office in Cincinnati, Ohio filed a complaint against Juvly Aesthetics (“Juvly”) – a group of “med spas” that employed nurse practitioners to perform aesthetic services. Juvly required its Nurses to sign agreements containing, among other things, a requirement that, upon termination, Juvly nurses would not practice aesthetic medicine for any competitor within a twenty-mile radius of any Juvly location for two years. The agreement also required that any employees who violated the non-compete would be responsible for repaying the costs incurred by Juvly in training the employee – an amount ranging from $30,000 to well over $100,000.
The Juvly agreement was particularly onerous as it also contained very broad non-disclosure and non-solicitation provisions as well as provisions that limited the ability of employees to criticize or challenge management on any issue. The NRLB alleged in its complaint that the non-compete and other provisions at issue constituted an unlawful attempt by Juvly to “interfere with, restrain, and coerce employees in the exercise of their rights guaranteed in Section 7 of the Act.”
Notably, General Counsel Abruzzo highlights a “special circumstances defense,” in her May 2023 memo which allows for narrowly tailored non-competes drafted to protect a legitimate business interest, such as protecting proprietary or trade secret information. The General Counsel was also clear that “a desire to avoid competition from a former employee” or to retain an employee to protect the employers “special investment in training employees” are business interests that are “unlikely to ever justify an overbroad non-compete provision because U.S. law generally protects employee mobility and employers may protect training investments by less restrictive means . . .”
Whether or not the NLRB will be successful in curtailing the use of non-compete agreements by employers remains to be seen. However, all employers should be aware that the NLRB is on the lookout for particularly onerous agreements and has already shown a willingness to enforce its position against employers.
The takeaway for employers in the foreseeable future is as follows. First, review any agreements that restrict competition with legal counsel familiar with labor law as well as competition issues. Second, remember that the NLRA does not typically apply to managers and supervisors. As a result, the NRLB is highly unlikely to challenge agreements signed by owners, managers, or supervisors. Third, carefully written agreements designed to protect legitimate interests, such as trade secrets, may still be enforceable. You should have legal counsel review such agreements to determine if the information at issue qualifies as a trade secret and if the agreement is sufficiently narrow. Finally, be thoughtful before enforcing existing agreements against employees. If your actions trigger an evaluation from the NLRB, you run the risk of not only losing your case against the employee at issue, but also facing an action from the NLRB that seeks invalidation of all your agreements.
D. Zachary Wiseman
Mr. Wiseman is an experienced labor and employment attorney whose practice is primarily focused on assisting both private and public employers with a wide range of labor and employment issues. Mr. Wiseman’s labor experience includes the representation of management in collective bargaining, labor arbitrations, unfair labor practice charges, and representation elections. Mr. Wiseman works closely with his clients to create and update policy and procedure manuals and ensure compliance with, among other things, National Labor Relations Act, Family and Medical Leave Act, Fair Labor Standards Act, Office of Federal Contract Compliance Programs, and various state and federal anti-discrimination laws.
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