The NLRB’s Expanding Scrutiny of Non-Solicitation Agreements

The landscape surrounding non-solicitation agreements is undergoing significant transformation, driven in large part by recent actions and interpretations from the National Labor Relations Board (NLRB). At the heart of this shift is a concerted effort by the NLRB to align non-solicitation agreements with the protections afforded to employees under the National Labor Relations Act (NLRA).

NLRB General Counsel’s 2023 Memorandum

Back in May of 2023 the NLRB General Counsel issued Memorandum 23-08 (“GC Memo”) which focused on the legality of non-compete agreements under the NLRA.   The GC Memo takes the position that, with few exceptions, non-compete agreements should be deemed unlawful because they can “chill” employees from engaging in activities protected under Section 7 of the NLRA. Section 7 guarantees employees, whether unionized or not, the right to organize, bargain collectively, and participate in other concerted activities for mutual aid or protection.

The GC Memo emphasized that non-compete agreements could deter employees from leaving their jobs to seek better working conditions, organizing or joining unions, or even discussing job opportunities with competitors—all actions protected by the NLRA. While the memo primarily targeted non-compete agreements, it left open questions regarding the status of non-solicitation agreements, which employers often pair with non-competes to protect their business interests.  Generally speaking, non-solicitation provisions prohibit employees from “soliciting” or “recruiting” their other co-workers for a different employer.

Testing the Waters

The impact of the GC Memo became clearer with a case brought against a medical clinic and spa by the NLRB’s Cincinnati regional office. This case, initially filed in late 2023, culminated in a significant settlement later that year.

The consolidated complaint, issued in September 2023, alleged numerous violations, including the maintenance of unlawful confidentiality, non-disparagement, non-compete, non-solicitation, and training repayment provisions. The employer’s policies required employees who left their positions within the first twelve months to pay up to $75,000 in training costs and prohibited them from practicing aesthetic services within a twenty-mile radius for 24 months after termination. The complaint also alleged that the employer instructed employees not to discuss their terms and conditions of employment, including individual employment contracts, bonuses, and evaluations; unlawfully enforced its non-disparagement and training repayment provisions; and unlawfully discharged and withheld benefits from employees.

The case was resolved when the employer agreed to a comprehensive settlement. Under the terms of the settlement, the employer consented to rescind the unlawful policies, cease demands for training repayments, and pay over $25,000 in monetary relief to two employees who had been affected by the unlawful discharge and withholding of benefits. Additionally, the employer was required to post a remedial Notice to Employees across all its U.S. facilities and on its Slack messaging application, informing employees of their rights under the NLRA.

Cementing the New Standard

The NLRB’s opposition to non-solicitation agreements reached a new milestone with the recent decision in the case of J.O. Mory, Inc. In this case, a NLRB administrative law judge (ALJ) found that, under the NLRA, specific non-compete and non-solicitation provisions in an employee’s contract were unlawful for employees who were not supervisors or managers. The decision is significant because it applied the NLRB’s new Stericycle framework, which evaluates work rules from the perspective of an employee who is economically dependent on their employer.

The ALJ ruled that the non-solicitation provisions, along with other restrictive covenants in the employment agreement, could “chill” employees from engaging in protected activities because the provisions were overly broad. The ALJ, however, did not conclude that non-competition and non-solicitation restrictions are generally unlawful under the NLRA. The ALJ ordered the employer to rescind these provisions and notify current and former employees that they were no longer enforceable. The provisions were:

• a non-solicitation provision intended to prevent “pirating” by prohibiting employees during their employment and for twenty-four months after separation from “solicit[ing], encourag[ing], or attempt[ing] to persuade any other employee of [the] Employer to leave the employ of [the] Employer”;
• a non-competition provision that prohibited former employees for twelve months following separation from “directly or indirectly” engaging in or working for “any other business similar or competitive with [the] Employer’s business”; and
• a provision that required the employee to report “any and all offers or solicitations of employment that [the] Employee may receive from third-parties” and that did not include a limitation for union or other protected activity.

This decision upheld many of the concerns raised in the GC Memo and the Cincinnati complaint, providing an example of how the NLRB’s positions are being translated into real-world legal outcomes. It is important to note that the ALJ’s decision is not final for now. The case is still pending on appeal before the Board in Washington, D.C. which has yet to issue a decision.

The Bottom Line

The developments above reflect a broader trend within the NLRB: a growing intolerance for restrictive covenants that limit employees’ rights under the NLRA. While the full legal impact of these actions is still unfolding, it is clear that the NLRB is charting a course toward more aggressive regulation of non-solicitation and non-compete agreements.

For employers, these developments are a clear signal to re-evaluate their use of such agreements.  Although true non-complete agreements are now banned in Minnesota (eff. July 1, 2023), non-solicitation agreements are commonly used.   As the NLRB continues to advance its enforcement agenda, it is likely that more cases will emerge challenging the legality of these agreements.