ALJ Ruling Adds Further Scrutiny to Non-Compete Agreements
June 27, 2024
A recent Administrative Law Judge (ALJ) decision has impacted the legality of non-compete and non-solicitation agreements in the context of labor rights in the United States.
In May 2023, the General Counsel of the National Labor Relations Board (NLRB) asserted that non-compete agreements may violate employees’ rights under Section 7 of the National Labor Relations Act (NLRA). On June 13, 2024, an ALJ decision in J.O. Mory, Inc., No. CA-309577 (2024), agreed with this view, finding that certain non-compete and non-solicitation provisions in an employment agreement were overly broad and violated the NLRA.
In J.O. Mory, the employer, a manufacturing firm, terminated an employee engaged in salting—a union-organizing tactic—and faced allegations from the NLRB’s General Counsel that their employment agreement’s non-compete and non-solicitation provisions unlawfully restricted employee rights.
The employment agreement in question included provisions that:
- (1) Prevented employees from soliciting or encouraging other employees to leave the employer for 24 months.
- (2) Required employees to inform the employer of any job offers or solicitations they received from other companies.
- (3) Prohibited employees from competing with the employer for 12 months after leaving the company.
The ALJ applied the Stericycle policy review test (372 NLRB No. 113, 2023) and found the non-compete clause to be overly broad, citing concerns about limiting former employees’ industry work and potentially discouraging unionization by threatening employer retaliation and limiting future job opportunities.
This case adds to the ongoing scrutiny and legal challenges against non-compete agreements, including recent moves by the Federal Trade Commission (FTC) to ban most non-compete agreements. If the decision is appealed, it is likely that the NLRB will uphold the ruling.
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