Your non-competes and non-solicits may violate ANOTHER federal law: the National Labor Relations Act

The Federal Trade Commission isn’t the only government agency gunning for your company’s noncompetes.

Earlier this month, a National Labor Relations Board Administrative Law Judge ruled that a non-union employer violated the National Labor Relations Act by utilizing unlawful noncompete and nonsolicitation provisions in employment agreements.

During their employment and for 24 months after that, an employee who signed one of these agreements could not “either directly or indirectly for [themselves] or on behalf of others, solicit, encourage, or attempt to persuade any other employee of Employer to leave the employ of Employer.” That nonsolicitation covenant is pretty typical.

There was also a 12-month noncompete that prevented employees from working for competitors in the same or contiguous counties in which they currently worked.

So, why would these fairly typical restrictive covenants violate federal labor law?

Section 8(a)(1) of the Act makes it unlawful to interfere with, restrain, or coerce employees to exercise rights to engage in union and other protected concerted activities. Facially, restrictive covenants don’t appear to impede these rights. However, suppose the Board’s General Counsel can demonstrate that the rule “has a reasonable tendency to chill employees” from engaging in these protected concerted activities. In that case, the rule is presumably unlawful, “even if a contrary, noncoercive interpretation of the rule is also reasonable.” Then, it’s up to the employer to show that “the rule advances a legitimate and substantial business interest” that it cannot advance “with a more narrowly tailored rule.”

The ALJ determined that a provision preventing employees from changing jobs would dissuade a reasonable employee from engaging in protected activity like telling their coworkers about the union wages and benefits elsewhere out of a reasonable fear that the current employee might accuse them of inducing other employees to quit.

The ALJ also determined that a noncompete “would also cause a reasonable employee to refrain from engaging in protected activities that come with a risk of retaliation” and losing their jobs altogether.

But might an employer have a legitimate business interest in maintaining the continuity of its workforce and preventing direct competition after an employee resigns? After all, that’s why courts often uphold these agreements. However, the ALJ concluded that the mere threat of enforcement would chill employees from engaging in union and other protected activity, which violates Section 8(a)(1), and other contractual prohibitions on misappropriating confidential information and diverting customers would suffice instead.

Consequently, the ALJ ordered the employer to cull noncompetition and nonsolicitation-of-employee covenants from all its employment agreements.