A National Labor Relations Board Administrative Law Judge recently found that a company violated the National Labor Relations Act (NLRA) by terminating a “union salt”— an organizer unions place at a workplace to unionize its employees ­— who lied about his work history and the job history of another applicant. The Administrative Law Judge (ALJ) also found that certain noncompete/nonsolicit covenants the employer required employees to sign violated the Act under the Board’s Stericycle decision issued last year.

This decision appears to be the first time an ALJ has thrown out a noncompete/nonsolicit agreement since National Labor Relations Board (NLRB) General Counsel Jennifer A. Abruzzo urged the Board to do so and underscores the perils that nonunion employers continue to face from organized labor and the NLRB.

Background

According to the ALJ’s June 13, 2024 decision, J.O. Mory, Inc. is a family-owned and operated HVAC servicer and installer located in Indiana that has been in operation since 1892. Mory is a nonunion company, which made it a target for the Indiana State Pipe Trades Association, which sent a “salt” named David McClure to apply for a job with the undisclosed intent to organize Mory’s employees. On his employment application, McClure falsely stated that he had been employed by a large nonunion HVAC contractor, Deem, for which he had never worked, and omitted two unionized contractors for which he had worked. During his brief tenure at Mory, McClure referred another employee whom he falsely claimed to have worked with at Deem.

Shortly thereafter, an overt union advocate applied for employment at Mory. On his application, this individual stated he was a “union officer, union activist and proud member of U.A. Local 166” who educated people “about the benefits of being union.” McClure engaged in discussion about this individual’s application with his manager, which he recorded and uploaded to the union’s Google drive. McClure recorded at least one other discussion with his manager, and the NLRB used portions of these recorded discussions in its case against Mory.

McClure then revealed himself to be a union organizer, advised his manager that he was there to organize Mory’s employees and admitted that he had never worked for Deem. Mory terminated him the next day. The company asserted that it had fired McClure for lying about his work history and falsifying his employment application. The union filed an unfair labor practice charge alleging that McClure’s termination violated the Act. It further alleged that noncompete and nonsolicit covenants included in Mory’s employment agreements with its employees were unlawful, although they had nothing to do with McClure’s termination.

The ALJ’s Decision

The U.S. Supreme Court has previously ruled that “salting” is legally protected under the NLRA, and that an employer may not fire (or refuse to hire) a salt because they are a union organizer. Accordingly, the primary issue before the ALJ was whether Mory had fired McClure because of his status as a union organizer or because he had lied on his employment application, as the company claimed. Though Mory introduced evidence that it had terminated other employees for lying, the ALJ rejected the company’s defense as a “pretext for discrimination.” The ALJ’s decision was based in part on Mory’s failure to present evidence that it had terminated other employees for lying on their employment applications. This underscores the difficulty employers have in cases such as this, where the absence of comparative evidence may be because no other employees had engaged in the misconduct at issue as opposed to discriminatory treatment by the employer. Regardless, the ALJ stated that the production of such evidence would not have salvaged Mory’s case anyway, because under legal precedent, a “salt may lie to get a job . . . at least if the lie merely concerns his status as a salt, union organizer, or union supporter and not his qualifications for the job.” (Emphasis added; citation omitted).

Accordingly, the ALJ found that McClure’s termination violated the Act, and she ordered Mory to offer him reinstatement, with back pay and interest, along with other compensatory remedies. The ALJ denied the General Counsel’s request that she order Mory to write a letter of apology to McClure.

The Noncompete/Nonsolicit Covenants

According to the ALJ’s decision, Mory requires employees to sign an employment agreement that includes several provisions concerning outside employment. One provision alleged to be unlawful prohibited employees during their employment and for 24 months thereafter from soliciting, encouraging or attempting to persuade any other employee of Mory to leave its employ to prevent “pirating” of Mory’s employees. Another provision required employees to advise Mory of any and all offers or solicitations of employment they received from third parties. A third provision prohibited employees from engaging in competition with Mory within the company’s service area for 12 months following their separation from Mory for any reason.

The ALJ found that each of the provisions violate the NLRA as infringements upon employees’ rights to engage in activity protected by the Act. In so doing, the ALJ applied the legal framework for evaluating employer work rules and policies the Board announced in Stericycle. Under this standard, the Board will examine whether a rule “has a reasonable tendency to chill employees from exercising their Section 7 rights, viewed from the perspective of an employee who is economically dependent upon the employer and who also contemplates engaging in protected concerted activity.” If it does, the rule is presumed to be unlawful, even if a contrary noncoercive interpretation of the rule is also reasonable, and an employer can only rebut the presumption of by showing that the rule advances a legitimate and substantial business interest that cannot be advanced with a more narrowly tailored rule.

In finding that the employee nonsolicit covenant violated Section 7, echoing the NLRB General Counsel, the ALJ stated that employees have an affirmative right to urge coworkers to quit and/or join a competitor as a means of exerting pressure on their employer to improve wages or working conditions. Correspondingly, the noncompete restriction would have the same effect and, further, prevent employees from salting other employers. The ALJ noted that Mory did not present any evidence that the challenged rules advanced any legitimate interest but essentially ruled that Mory could not have met its burden anyway, because its interests in preventing employees from using or disclosing confidential information and customer goodwill were amply protected by other provisions of the employee agreement.

Takeaways

First, the good news — the ALJ’s decision is only binding upon the parties, and the employer may file exceptions to the decision with the NLRB. However, although it lacks precedential value, the ALJ’s decision provides the Board (and other ALJs) with an analytical roadmap under Stericycle to help effectuate General Counsel Abruzzo’s policy aim of invalidating most agreements/rules prohibiting employees from competing with their employer or from soliciting their coworkers to leave their employer. Accordingly, whatever happens with the Federal Trade Commission’s ban on most employment-based noncompetes, employers subject to the NLRA (virtually all private sector employers) need to contend with the NLRB’s activism in this area. Moreover, the ALJ’s opinion appears to suggest that policies prohibiting employees from “moonlighting” with another employer are also illegal under the NLRA. One silver lining is that the NLRA does not apply to managers or supervisors, so noncompete/nonsolicit restrictions imposed on those employees should be “safe” from attack under the NLRA (although not from the FTC’s ban if it should survive judicial review). Nevertheless, employers who employ skilled tradespeople or other individuals whose employment by a competitor would likely present a competitive threat to the employer may have to look elsewhere to protect their business.

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