The National Labor Relations Board (NLRB) is getting more active in a nascent crackdown on non-compete agreements. After issuing a memo that claimed that non-compete agreements violate the National Labor Relations Act (NLRA) back in May, the agency has alleged that the non-competes used by a group of spas in Ohio violate the NLRA and amounted to unfair labor practices.
These developments are extremely important for both large and small businesses in Massachusetts, as well as the employees who work in them, as they show a massive shift in labor policy at the federal level.
NLRB Claims Spas' Non-Compete Agreements Contribute to Unfair Labor Practices
The complaint is based on allegations against the spa company Juvly Aesthetics, which operates in Cincinnati, Ohio, as well as in Wisconsin. The NLRB's case focuses on several extremely broad provisions in the employment contract and the employee handbook that the company uses with its workforce.
Of particular importance were the following provisions:
- A non-solicitation clause that forbids former employees from hiring current Juvly employees, or encouraging them or current Juvly clients to leave, and that lasted for two years after termination and included a $150,000 penalty for each employee and $25,000 for each client that was solicited, plus exorbitant interest payments
- An extremely broad anti-disparagement provision that forbade “negative comments” about the company
- A confidentiality agreement that explicitly prohibited the discussion of salary information
- A provision that ordered former employees to not discuss their employment status with the company's clients or anyone else
- A requirement that former employees return or destroy “all compensation or human resource information” in their possession
- A recoupment of up to $105,000 in training costs from employees who leave within two years of being hired
- A prohibition against workplace “drama”
Altogether, the NLRB claims that these provisions – coupled with the fact that they applied to many low-level employees with little access to sensitive company information – amounted to an unfair labor practice in violation of Sections 2, 7, and 8 of the NLRA (29 U.S.C. §§ 152, 157 – 158).
Enforcement Action Comes After Memo Showing New Labor Policies
While the employment contracts at issue in this case raise a wide range of serious legal concerns for their breadth and severity, the fact that the NLRB is also pursuing the non-compete agreement shows that the agency was not just talking when it argued that non-competition agreements violated Section 7 of the NLRA (Memo Number GC 23-08).
In short, Section 7 of the NLRA guarantees employees the right to organize into labor unions or to otherwise bargain collectively. In its memo from May 30, 2023, the NLRB stated that non-competes threatened this right by making it more difficult for workers to make a living if they lose their job – including if they are terminated for advocating for better working conditions or unionization.
The general counsel memo that announced the NLRB's new position is not legally binding and the agency would have to persuade a court that their interpretation of the law is the correct one. However, it has now become clear that the NLRB intends to move forward with this new reading of the law.