The National Labor Relations Board (NLRB) is chipping away at employment agreements and other restrictive covenants one clause at a time. In a recent memorandum, the General Counsel said she believes restricting employees from holding outside or secondary employment violates federal labor law, and she intends to urge the NLRB’s Democratic-appointee-controlled Board to reach the same conclusion.

The General Counsel was providing a regional office advice about the lawfulness of various provisions in a company’s employment agreement when she took issue with the company’s “Duties of Employees” provision, which reads much like a standard duty of loyalty clause:

Except as hereinafter provided, the Employee shall at all times during the continuance of this AGREEMENT devote her full time to the conduct of the business of the Employer and shall not directly or indirectly, during the term of this AGREEMENT engage in any activity competitive with or adverse to the Corporation’s business or welfare whether alone, or as a partner, officer, director, Employee, advisor, agent or investor of any other individual corporation, partnership, joint venture, association, entity or person.

The General Counsel said she believes any rule or agreement interfering with an employee’s right to moonlight or access other employment is unlawful. Because this provision prevented employees from being an “employee” of another entity, it could be read as prohibiting secondary employment and would be unlawful. The company’s rule, she added, implicitly prohibits “salting” – that is, the tactic of union agents acquiring jobs in particular workplaces for the sole purpose of unionizing that business – in violation of the National Labor Relations Act.

The General Counsel also said she would find the clause unlawful because employees could reasonably read it to prohibit union organizing or speaking out publicly about terms and conditions of employment because an employer may deem such actions “adverse” to their business.

Though taking issue with the “Duties of Employees” clause, the General Counsel found the company’s noncompete and confidentiality provisions lawful.

Noncompete/Nonsolicitation

The General Counsel said the provision limiting an employee from soliciting or seeking the business of a customer, client or account of the employee’s former employer for a one-year period was lawful. The key was that the noncompete did not prevent employees from accessing other employment opportunities, and the restriction on soliciting customers was for a limited time. However, if there were a very limited pool of customers in the industry such that the noncompete effectively foreclosed other employment opportunities, the General Counsel said she may find such provision unlawful.

Confidentiality/Business Disclosures

Employers are often wondering if their confidentiality clauses are overbroad under the Act, and the General Counsel provided some helpful guidance in this memorandum. The employer’s agreement prohibited employees from disclosing or using “any information related to the employer’s business and the business of the employer’s present or prospective customers, including, but not limited to, any promotional concepts, marketing plans, strategies, drawings, customer lists or other information not otherwise made available to the general public.”

The General Counsel approved of this provision because it listed things that are clearly proprietary and trade secrets, and there was no reference to employee information, wage information or anything related to working conditions – all topics that employees are free to discuss with their colleagues and other third parties under the Act.

Citing the Board’s recent decision in Stericycle, 372 NLRB No. 113 (2023), the General Counsel reiterated that the Board evaluates whether a rule is overbroad from the perspective of an employee who is “economically dependent on their employer and who contemplates Section 7 activity.”

Employer Takeaways

The NLRB continues to limit an employer’s right to manage its workforce. All employer-employee communications are on the table and should be evaluated for overbreadth. For more information about the NLRB’s crackdown on work rules and restrictive covenant agreements, please see these recent blog posts by Miles & Stockbridge’s Labor and Employment team:

- NLRB Restricts Use of Confidentiality and Nondisparagement Clauses in Severance Agreements

- NLRB’s General Counsel Offers More Guidance on Confidentiality and Non-Disparagement Decision

- NLRB Targets Noncompete Agreements

- NLRB’s New Work Rules Standard Skews in Favor of Employees and Unions

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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