The acronyms “NLRB” or “NLRA” rarely appear in articles about enforcement of private sector non-compete agreements. Until recently. Dun dun dun! (Que the “dramatic gopher video” on YouTube).
In this thirteenth article of “The Restricting Covenant” series, I discuss two cases in which the National Labor Relations Board (“NLRB”) determined that an employer’s enforcement of non-compete and non-solicitation agreements violated Section 8(a) of the National Labor Relations Act (“NLRA”). Section 8(a) makes it an unfair labor practice for an employer to maintain workplace rules that would reasonably tend to chill employees in exercising their Section 7 rights to engage in or refrain from concerted activities protected under the NLRA.
Minteq International
In July 2016, a three-member panel of the NLRB found that steel product company, Minteq International, violated federal labor law by requiring newly hired union employees to sign a non-compete, non-solicitation and confidentiality agreement as a condition of their employment without giving Local 150 of the International Union of Operating Engineers prior notice or the opportunity to bargain on this issue. 364 NLRB No. 63. While broad confidentiality provisions had been under attack by the NLRB for quite some time prior to the Minteq decision, non-competes and non-solicitations generally had not.
Local 150 filed an unfair labor charge after Minteq had sent letters to a former employee reminding him of his 18-month post-termination non-compete obligations and instructing him that he could not work for a competitor. In response, Minteq argued the non-compete was at the core of entrepreneurial control with only an indirect and attenuated impact on the employment relationship, and thus was not a mandatory subject of bargaining. The Board rejected Minteq’s argument and found that the non-compete was a mandatory term of employment, and as such, the Union should have been notified and given the opportunity to bargain prior to its implementation. It noted that the non-compete agreement prohibited an employee from working for another company that might have any connection with Minteq’s business during his employment and for 18 months thereafter, effectively imposing “a cost in lost economic opportunities” on employees as a consequence of working for Minteq. The Board concluded that Minteq’s unilateral imposition of the non-compete violated the NLRA.
In April 2017, a three-member panel of the Circuit Court for the District of Columbia affirmed the Board’s decision. It found the management-rights clause in the parties’ Collective Bargaining Agreement broad; however, the clause was not limitless and specifically did not permit Minteq to impose non-compete obligations on employees after they left employment. The Court also upheld the Board’s determination that Minteq’s “Interference with Relationships” clause[1] independently violated Section 8(a)(1) because employees could reasonably read this clause to prohibit them from asking customers to boycott Minteq’s product in support of a labor dispute in violation of the employee’s Section 7 rights.
Haynes Mechanical Systems
The Haynes Mechanical Systems case came by way of an Advice Memorandum from the NLRB’s Division of Advice, Office of the General Counsel, in July 2016. 45 NLRB Advice Memo Rep. 11.
Haynes Mechanical is a non-union Colorado-based company that provides heating, ventilation and air conditioning services to commercial buildings. As a mandatory condition of employment, Haynes required its employees to sign a confidentiality, non-solicitation of customers and non-solicitation of employees agreement. One of Haynes’ service technicians left, joined a unionized competitor, and encouraged other Haynes technicians to leave and join his new employer, which prompted Haynes to file a state court complaint against him for violating his non-solicitation of employees’ obligation. Haynes sought an injunction and damages in excess of $100,000.
The technician subsequently filed a charge with the NLRB, alleging that Haynes’ state court lawsuit violated Section 8(a)(1) of the NRLA. The Regional Director submitted the case for advice from the Office of General Counsel regarding whether (1) the non-solicitation and confidentiality agreements were unlawful, and (2) Haynes’ state court lawsuit to enforce those provisions violated Section 8(a)(1). The Advice Memorandum answered both questions in the affirmative.
The Memorandum concluded that the non-solicitation of employees provision unlawfully prohibited concerted activity protected by the NRLA because employees would reasonably construe them to prohibit Section 7 activity – “[f]or example, organizing a conference for employees to meet with other employers, or asking employees to fill out applications for other employers, as part of protective or protest activity would reasonably be considered influencing or indirectly inducing employees to terminate their employment.” The Memorandum explained that “[t]he right of employees to protect and improve their wages and benefits by engaging in discussion and solicitation are at the core of Section 7 protections,” and that the “non-solicitation provisions at issue here significantly infringes on the ability of employees to discuss the potential advantages of union representation in order to gain higher wages and benefits either at their current employer or with another.” It concluded that Haynes’ state court lawsuit had an “illegal objective because it seeks to enforce those unlawful provisions and thus also violates Section 8(a)(1).” In attempting to temper the breadth of its decision, the Memorandum noted that Haynes “can lawfully further its interests in retaining employees and protecting against disclosure of proprietary information and knowledge by maintaining lawful non-compete agreements that do not infringe on collective activity,” and that Haynes had “lawfully protected itself from the disclosure of proprietary information and the solicitation of its customers through other provisions” in the agreements.
What’s on the Horizon for Non-Competes and the NLRB?
It is unclear whether the current members of the NLRB under the Trump Administration will take a similar approach at scrutinizing restrictive covenants as the Board did under the Obama Administration in Minteq or in the Advice Memorandum in Haynes Mechanical Systems. Nevertheless, as attacks on the breadth and scope of restrictive covenants continue to mount from different angles, employers – union and non-union alike – should be mindful of the potential pitfalls and challenges associated with broad restrictive covenants in employment-related agreements.
Unionized employers should review the Minteq decision before imposing non-competition or other restrictive covenants on employees represented by a union, particularly if the restrictive covenant would prohibit protected labor activities or is covered under a CBA. Non-unionized employers should review the Haynes Mechanical Systems and Minteq decisions as well, particularly in light of the Circuit Court’s finding that Minteq’s “Interference with Relationship” clause violated Section 8(a) of the NLRA, as the NLRA’s non-interference provisions apply to all employers, even ones that do not employ unionized employees. Also, employers might consider adding disclaimer language in the restrictive covenant agreement that makes clear that nothing in the agreement should be construed to interfere with concerted activities protected by the NLRA.
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The goal of this Series is to provide a brief overview and some interesting insights and practical pointers when dealing with unique issues that might arise in the context of restrictive covenants. It is not intended to provide and should not be construed as providing legal advice. Each situation is different including the governing state law, and if legal advice is needed, you should seek the services of a qualified attorney who is knowledgeable and experienced in this area of the law to address your specific issues or needs. Stay tuned for future articles in this Series, which will discuss the restrictive covenant landscape for many other occupations and industries, including sales persons, surgeons, scientists, and more.
[1] The Interference with Relationship clause prohibited an employee from “directly or indirectly . . ., intentionally solicit[ing] or encourage[ing] any present or future customer or supplier of the Company to terminate or otherwise alter his, her, or its relationship with the Company in an adverse manner. . . .”
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