NLRB Says Noncompete and Nonsolicitation Agreements May Violate National Labor Relations Act

President Biden issued an executive order that all federal agencies look into noncompete agreements, and they have been doing so. The FTC recently banned most of them (don't get too excited though as Republicans challenge this), and now NLRB is stepping in.

In a recent decision, the NLRB determined that an employer's 12 month noncompete and 24 month nonsolicitation agreements violated the National Labor Relations Act. Some key takeaways:

a.    These agreements can have a chilling effect on employees who want to discuss possible unionization or working conditions.

b.    Employees dependent on a paycheck will be afraid to rock the boat.

c.    If employees are unable to find similar work because it's prohibited, they will be even more afraid to speak up.

d.    Employees could be afraid of discussing unionization for fear of being accused of inducing employees to leave.

e.    There are far less oppressive ways to protect confidential information.

f.    The very existence of a rule, whether or not there has been any attempt to enforce, can violate the law.

Here are some key quotes from the opinion that might help you if an employer seeks to enforce one of these agreements against you:

• An employee who is dependent on Respondent for a paycheck would reasonably view the cited provisions in the employment agreement as limiting their ability to engage in union and other protected activities. The prohibition in Provision 1(C) on soliciting employees to leave Respondent’s employ would dissuade a reasonable employee from engaging in protected activity like telling their coworkers about the wages and benefits offered by the Union out of a reasonable fear that Respondent might accuse them of inducing other employees to quit. 
• Not only is this provision ridiculously broad in scope (could an employee indirectly engage with a competitor by sending a family member to buy something from its store?), but it would also cause a reasonable employee to refrain from engaging in protected activities that come with a risk of retaliation. 
• If an employee knows they are barred from being involved in any capacity with any company that operates a similar business to Respondent, they will logically be more fearful of being fired and less willing to rock the boat because they face the prospect of being unable to find any work in their geographic area if they are fired or forced to leave their job. 
• All three of the challenged provisions would deter 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 having Respondent find out they are working for one of its competitors.
• The non-competition clause in Provision 2(A) applies for 12 months after employees leave, but in practice it also applies to employees while they are working for Respondent, as most employees find a new job before leaving their old job, and the knowledge that they will be unable to work for a competitor in their geographic area if they are fired or leave would necessarily impact their behavior before and after they leave Respondent’s employ. 
• Because employees are required to sign Respondent’s employment agreement at a time when they are economically dependent on Respondent, I find that the above provisions unlawfully chill employees from participating in protected activities both during and after their employment with Respondent. 
• A reasonable former employee would continue to be chilled from engaging in union and other protected activity by the threat of damages and legal fees for violating the agreement. It is unlawful for an employer to restrain former employees from engaging in protected activity.
• The agreement itself states that the rule against soliciting other employees prevents “pirating,” the requirement that employees report job offers is in place to “protect [Respondent’s] rights under this Agreement” and that the noncompetition provisions are in place because employees may have information about its customers, employees, and business arrangements. There are other, unchallenged, portions of the agreement that address these concerns, including provisions requiring employees to turn over confidential and proprietary information and prohibiting them from trying to divert Respondent’s customers. Therefore, the stated justifications are insufficient to rebut the presumption that the provisions are unlawful, particularly in the absence of any evidence that Respondent’s objectives could not be addressed with a more narrowly tailored rule.
• When a rule chills employees in the exercise of their Section 7 rights, the Board has the authority to prevent it from “cowing…employees into inaction” by blocking it even before the “chill is manifest.”
• Nor does the Board have to wait for a work rule to be enforced before it acts, as it “has long and consistently recognized that an employer’s mere maintenance of a work rule may unlawfully interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.”

Noncompete agreements and, to some extent, nonsolicitation agreements, work to suppress wages, make employees afraid of being fired, force employees to put up with terrible working conditions, and are generally a menace to society. I'm glad to see that the federal agencies are finally waking up to their evils. 

Vote well in the upcoming election if you want to let President Biden keep pushing to limit these awful agreements.

If you have a noncompete or nonsolicitation agreement and want to know if it's enforceable, talk to an employee-side employment lawyer in your state.