Federal agency targets noncompetes, other restrictive covenants

The general counsel for the National Labor Relations Board released a memo in May against noncompetes, according to a March 8 article from law firm Parker Poe Adams & Bernstein posted on JDSupra

The memo, which argues that noncompetes violate the National Labor Relations Act because they interfere with employees' rights to engage in protected concerted activity, "left many questions open as to the permissible scope of noncompetes and related restrictive covenants," according to the article. 

Two subsequent moves from the board have answered some questions on the legality of various employee contract provisions. 

In February, the NLRB's regional office in Cincinnati approved a settlement agreement with Juvly Aesthetics and three of its former employees.The agency alleged that the company, which operates medical clinics, violated employees rights with confidentiality, non-disparagement, noncompetition, non-solicitation and training repayment provisions.

Among other claims, the company allegedly prohibited employees from discussing their pay and required some employees to sign a 24-month noncompete for any competing medical practice within 20 miles of a company location.

The company agreed to a settlement under which it paid back pay to certain employees, rescinded its unlawful policies, released employees from unlawful agreements and posted the requirements of the settlement for all employees. 

"In the face of this aggressive enforcement push, employers would be wise to evaluate their use of restrictive covenants," the report said. 

In December, the NLRB Division of Advice issued another memo, evaluating the legality of three issues and providing employers with "some assurance that not every restrictive covenant is unlawful," according to the report. 

  1. The memo found that customer non-solicitation provisions did not violate the NLRA because it only prevents an employee from soliciting existing customers for one year, thus not barring employees from other employment opportunities. 
  2. The memo also found that confidentiality provisions do not violate the NLRA because it bars only the disclosure of trade secrets, marketing plans, customer lists and other quintessential proprietary information, rather than information that could be employee activity, such as wage information. Similarly, return of company property provisions was deemed not to implicate employee information. 
  3. The NLRB found that employee duties provisions violate the NLRA because it prevents employees from engaging in competitive activity, which could be read as preventing employees from engaging in protected activity such as unions. 

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