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July 18, 2023

What Employers Can Learn From the NLRB’s Recent Prosecution and Settlement of a Noncompete Case

At a Glance

  • In February 2023, the NLRB held that certain overbroad confidentiality, nondisclosure and nondisparagement provisions run afoul of federal labor law in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023).
  • Since then, Berry Green Management, Inc., a Michigan-based cannabis company, reached a settlement with employees in the NLRB’s prosecution of an allegedly unlawful noncompete agreement.

In early May 2023, around the same time as the National Labor Relation Board’s (NLRB or the Board) General Counsel, Jennifer Abruzzo, issued guidance memorandum GC 23-08 to all Regional Directors, Officers-in-Charge and Resident Officers stating that, in her opinion, most noncompete provisions violate the National Labor Relations Act (NLRA), private employer Berry Green Management, Inc. (Berry Green), a Michigan-based cannabis company, reached a settlement with employees in the NLRB’s prosecution of an allegedly unlawful noncompete agreement. Because the employees requested the withdrawal of their unfair labor practice charge after agreeing to the private settlement, certain NLRB prosecution documents became available to the public.1 While these documents are not precedential, they can provide a glimpse into the NLRB’s playbook and can help employers better understand how the NLRB might in the near future attempt to regulate (and litigate) private employer’s post-employment restrictive covenants, including not just traditional noncompete agreements, but also nonsolicitation, and other “non-interference” restrictions.

The NLRB’s complaint against Berry Green alleged that the company violated the NLRA by, among other things, maintaining a broad non-solicitation provision in its confidentiality, nonsolicitation and noncompete agreement. The nonsolicitation provision prohibited Berry Green’s employees from recruiting co-workers, contractors, or salespeople to leave Berry Green and join a competitor during the term of the agreement. It also prohibited employees from encouraging anyone to reduce or discontinue their business relationship with Berry Green. This anti-interference-with-business-relationships provision is similar to a provision the Board declared unlawful in 2016 in a decision, Minteq International, Inc., 364 NLRB 721 (2016), which the General Counsel cited in her recent guidance memorandum, GC 23-08. In Minteq International, the employer maintained an “interference with relationships” provision in its confidentiality agreement, which prohibited employees from soliciting or encouraging the employer’s business partners to terminate or alter their relationships with the employer. The Board found that nonsolicitation provision was unlawful, holding that it restricted the employees’ ability to communicate with customers and other business partners in a concerted effort to improve the terms and conditions of their employment.

In addition to the nonsolicitation provision, the NLRB’s complaint against Berry Green addressed noncompete provisions, alleging that a two-year post-employment restriction on working for other employers in the same industry that was geographically limited to the state of Michigan was overbroad and unlawful under Section 8 of the NLRA. 

With respect to remedies, the NLRB’s complaint requested the Board to order Berry Green to rescind the allegedly unlawful noncompete, nonsolicitation, and confidentiality provisions as well as rescind any discipline related to those provisions and make whole any employees who suffered “financial loss” as a result of enforcing those provisions. The General Counsel did not specifically indicate which “financial loss” may be included or demonstrable but noted that it would include reasonable “search-for work and interim employment expenses.”

Employers should seize this opportunity to review their post-employment agreements. Because the Berry Green case settled before a hearing before the Board, the NLRB’s General Counsel and Regional Directors likely will have other business in their sights for targeting overbroad nonsolicitation and noncompete agreements. Often a company will require all of its employees to sign noncompete or nonsolicitation agreements, even though such agreements might not be necessary for the entire workforce. In addition, noncompete and nonsolicitation agreements should be narrowly tailored to address the specific business interest that the employer has a right to protect. Thus, for example, customer nonsolicitation agreements should be tailored to the customers with whom the employee had dealings with. The uncertainty of rapidly changing law regarding restrictive covenants, coupled with the possibility of having to defend an unfair labor practice charge against the General Counsel’s aggressive prosecution, could present significant financial challenges to employers. 

In February 2023, the NLRB held that certain overbroad confidentiality, nondisclosure and nondisparagement provisions run afoul of federal labor law in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023). Since that decision, the General Counsel has issued two guidance memoranda articulating her view on the lawfulness of such provisions and signaling her intent to advocate expanding the decision to other restrictive covenants like noncompete agreements. The Berry Green case highlights that while noncompete agreements tend to get the spotlight in the headlines, the NLRB’s General Counsel remains focused on a variety of restrictive covenants that employers commonly require its employees to agree to, including nonsolicitation of customers, employees, and other business relationships (i.e., vendors, suppliers, etc.). These provisions should be reviewed as well for overbreadth and necessity. 

If you have any questions about the implications of McLaren Macomb, the General Counsel’s prosecution of unfair labor practices, or any other regulation of post-employment agreement provisions, please contact an attorney on Faegre Drinker’s labor management relations or employment mobility and restrictive covenants teams.

  1. Bloomberg Law obtained redacted documents from the NLRB’s investigation and prosecution through a Freedom of Information Act request.

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