On June 13, 2024, a National Labor Relations Board (“NLRB”) Administrative Law Judge (“ALJ”) ruled that overly broad non-compete and non-solicitation provisions in an employment agreement violated an employee’s labor rights under the National Labor Relations Act (“NLRA”).
This decision marks what may be the first NLRB ruling to find such provisions unlawful.
KingSpry’s Employment Law Chair, Avery E. Smith, Esq., discusses the recent ruling and the potential for NLRB scrutiny of non-compete and non-solicitation agreements.
Case Background
This case, J.O. Mory, Inc. v. Indiana State Pipe Trades Association, et al., involves “salting,” which is a tactic that some unions use to send organizers (also known as “salts”) to work for non-union employers to organize their employees.
In 2022, an organizer for the Indiana State Pipe Trades Association (“Union”) applied for an open position with a non-union HVAC company, J.O. Mory, Inc (the “Company”). The organizer falsely claimed that he worked for a non-union employer, and was later hired by the Company.
The organizer later revealed that he never worked for a non-union employer. The Company fired him the next day for falsifying his application and misrepresenting himself to his coworkers.
Allegations Against the Company
The Complaint alleges that the Company maintained overly broad and unlawful rules in its employment agreement in violation of Section 8(a)(1) of the NLRA and fired David McClure because of his union affiliation and activities, in violation of Sections 8(a)(1) and (3) of the NLRA.
Further, it alleges that the Company’s employment agreement contains a non-compete clause and other provisions that “chill” employees from engaging in salting and other union and protected activities.
The Administrative Law Judge’s Decision
The ALJ determined that the Company (1) unlawfully terminated the organizer for engaging in union activity protected under the NLRA, and (2) maintained unlawful non-compete and non-solicitation policies in violation of the NLRA.
Contending that the provisions were overly broad and unlawful, the ALJ explained that the non-compete would cause a reasonable employee to refrain from engaging in protected activities. The ALJ also discussed that the non-solicitation provisions interfered with protected activities, such as telling co-workers about union benefits.
Employers should note that the ALJ did not conclude that non-competes and non-solicitation restrictions are generally unlawful under the NLRA. However, review by the NLRB is expected after this decision.
Order Against the Company
The Company was ordered to cease and desist from their unlawful activity, offer reinstatement to the employee, and make the employee whole for any loss of earnings or financial harms.
What Does the Future Hold?
This decision follows the NLRB General Counsel, Jennifer A. Abruzzo’s, position that overly broad non-compete agreements are unlawful due to the “chilling effect” they have on employees from exercising their rights under Section 7 of the NLRA.
