In earlier articles titled “FTC announces nationwide ban on noncompetes in the workplace” and “FTC’s ban on noncompete agreements halted … sort of”, we reported on the Federal Trade Commission’s efforts to invalidate employers’ noncompetition agreements with employees. Now, the National Labor Relations Board has stepped to the plate and taken a swing at those same provisions.  (Hey, it’s baseball season, after all.)

Spring 2023 NLRB memorandum

The NLRB’s decision to wade into this area should come as no surprise. Last spring, the Labor Board’s general counsel issued a memorandum advising all NLRB regional offices that, in most instances, noncompetition agreements were unlawful because they violated employees’ rights under the National Labor Relations Act. Not surprisingly, it was only a matter of time before one of NLRB’s offices acted on the memorandum’s advice and conclusions.

The charge and the employer’s noncompetition and no solicitation provisions

David McClure worked as an HVAC technician for J.O. Mory, Inc., a company that services and installs HVAC systems in the Fort Wayne, Indiana, area. Unbeknownst to the employer at the time of his hiring, McClure was a “salt,” a person who obtains a job at a specific workplace with the covert intent of organizing a union. When McClure revealed to the company that he was a union organizer, he was terminated for falsifying certain aspects of his work history on his job application.  Charges of unfair labor practices were subsequently filed with the NLRB alleging the company fired McClure on account of his unionizing efforts and to discourage union organizing attempts.

In a June 13, 2024, decision, an administrative law judge found the employer had unlawfully fired McClure because of his union organizing activities. However, the judge went a step further and invalidated noncompetition and nonsolicitation provisions that applied to McClure and other J.O. Mory employees. When hired, new employees were required to sign agreements that:

• prohibited the employee for a period of 12 months after employment ended from directly or indirectly competing or working for a competing organization; and
• prohibited the employee for a period of 24 months after employment ended from directly or indirectly soliciting, encouraging or persuading other employes to leave J.O. Mory’s employment.

According to the judge, these restrictions on employees violated the NLRA and were unenforceable. The judge ordered the employer to rescind these restrictive clauses from its employee agreements. [NOTE: Because the NLRA’s employee rights provision does not cover supervisory or managerial employees, this holding would not technically apply to supervisory and managerial personnel.]

What’s on the horizon

At least two messages from the decision come across loud and clear.  The NLRB intends to join the FTC in attacking noncompetition and nonsolicitation agreements. In this regard, the NLRB’s regional offices can be expected to actively follow the Labor Board general counsel’s Spring 2023 Memorandum. As a corollary, unions and individual employees are likely to increase their challenges to employers’ attempts to place restrictions on their rights to compete and solicit.

“Used to work on Mr. Finley’s farm
But the old man wouldn’t pay
So he packed his glove and took his arm
An’ one day he just ran away.
Catfish, million-dollar-man,
Nobody can throw the ball like catfish can.
Come up where the Yankees are,
Dress up in a pinstripe suit,
Smoke a custom-made cigar,
Wear an alligator boot.
Catfish, million-dollar-man,
Nobody can throw the ball like Catfish can.”

— “Catfish” by Bob Dylan

• J.O. Mory, Inc. and Indiana State Pipe Trades Assoc., 25-CA-309577 and 25-CA-336995 (NLRB 6/13/24)