Wages On THE War

by Justin Allen

The topic of noncompete provisions in employment agreements has been at the forefront recently. The Federal Trade Commission recently proposed a rule to outright prohibit such provisions with final action pending as of the date of publication. Additionally, legislation was filed in the recent legislative session in Arkansas to effectively prohibit noncompete agreements in the employment context. (HB1628). That bill failed in House committee.

Now, the National Labor Relations Board (NLRB) has entered the fray. General Counsel for the NLRB issued a memo on May 30th asserting the position that many, if not most, noncompete provisions in employment agreements violate the National Labor Relations Act.

The memorandum states that noncompete agreements violate the law as follows:

• They chill employees from concertedly threatening to resign to demand better working conditions;

• They chill employees from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;

• They chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions;

• They chill employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and

• They chill employees from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.

While the memo is fairly brief and general in nature, it does contain some language that provides a small amount of guidance. For instance, it states that provisions may be lawful if they “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.”

Additionally, non-compete agreements protecting an employers’ proprietary information or trade secrets may be considered a legitimate business interest if supported by narrowly tailored provisions. The seniority of the worker and his compensation are to be considered. For instance, noncompete agreements for low-to-middle wage workers who are not privy to trade secrets or other protected interests are invalid.

The memo directs NLRB regional to submit cases concerning “arguably unlawful” non-compete agreements to the NLRB Division of Advice. Those cases will then be submitted to the members of the NLRB Board for consideration.

To the extent a bank, or any other business, utilizes noncompete provisions in employment agreements, this memo must be considered. It would seem that provisions applied to high ranking individuals with access to trade secrets or proprietary information may be safe.

On the other hand, such provisions applied to low and middle wage individuals with no access to such information are likely not. But, each situation will turn on its own facts. Every employer that utilizes noncompete provisions should consult with counsel about the NLRB memo and its potential impact on existing and future agreements with employees.