NLRB Targets Non-Solicitation Agreements as well as Non-Competes
Posted: September 15, 2023
Last May, National Labor Relations Board (NLRB) General Counsel (GC) Jennifer A. Abruzzo released Memorandum 23-08 claiming employers that require non-compete agreements violate the National Labor Relations Act (NLRA).
GC Memo 23-08 did not expressly condemn prohibitions against solicitation of customers and employees, which employers also commonly use to protect their customer relationships and training and investment in employees. A recent NLRB complaint has clarified, however, that it is indeed the GC's opinion that employee and customer non-solicitation agreements violate the NLRA.
Earlier this month, the NLRB's Cincinnati regional office filed a complaint alleging that a medical clinic and spa violated the NLRA by, among other things, requiring its employees to execute agreements containing non-compete as well as customer and employee non-solicitation provisions. Specifically, the agreements prohibit a departing employee from engaging in the following activities for a period of 24 months following the termination of employment:
- Soliciting or hiring any current or former employees of the spa;
- Intentionally interfering with or soliciting any of the spa's customers;
- Practicing aesthetic medicine and providing a specifically listed service within a 20-mile radius of any of the spa's locations; and
- Owning, investing in, or providing services to any medical practice that competes against or provides similar services to the spa within a 20-mile radius of any of the spa's locations (10-mile radius for New York City).
The agreements also contain a liquidated damages provision that requires employees to repay the employer for the costs of their training by the employer if they breach the agreement or separate before 12 months of employment.
The complaint alleges that the non-competition and non-solicitation agreements and related policies violate the NLRA by interfering with, restraining, and coercing employees in the exercise of their rights guaranteed in Section 7 of the NLRA. In addition, the complaint asserts that the spa unlawfully attempted to enforce its liquidated damages provision against former employees because they violated the non-compete and confidentiality provisions or filed an unfair labor practice charge, and that the spa "discourage[d] employees from engaging in these or other concerted activities." Among other remedies, the GC seeks an order that the spa rescind the non-compete, non-solicitation and other allegedly unlawful policies and agreements and make the former employees whole.
Given the unprecedented nature of this complaint. It is important to note that the complaint represents the GC's position on non-competition and non-solicitation agreements, not the current state of the law. At the same time, the current NLRB majority has recently endorsed other positions of the GC when issuing several pro-labor decisions. If the NLRB adopts the GC's position in the Cincinnati complaint, it is likely that decision will be challenged on appeal. It could be some time before the law in this area is clarified by the courts. In the meantime, it would be advisable for employers to review their current restrictive covenant agreements and related policies with employment counsel and consider whether there are reasonable ways to mitigate the risk of an unfavorable outcome.
Posted In: National Labor Relations Act (NLRA); National Labor Relations Board (NLRB); Non-Compete Clause (Restrictive Covenant)
Want to know more? Read the full article by Tyler Sims, Melissa McDonagh, and Michelle Devlin at Littler Mendelson