noncompete Archives - Lake Effect HR & Law

NLRB Targets Non-Compete and “Stay-or-Pay” Provisions

admin — Mon, 11 Nov 2024 14:30:05 +0000

Employers should take a fresh look at noncompete agreements and provisions requiring non-supervisory employees to repay funds upon termination (such as training or educational repayment contracts and sign-on bonuses) in light of recent NLRB memoranda on these issues. Although the FTC’s attempted nationwide ban on noncompetes was blocked by a Texas federal judge in August 2024, that decision has no impact on the NLRB enforcement of employee rights under the NLRA.

On October 7, 2024, NLRB General Counsel Jennifer Abruzzo issued Memorandum GC 25-01. In that Memorandum, Abruzzo reiterates that typical employee noncompete agreements violate the National Labor Relations Act (NLRA), regardless of whether employers attempt to enforce them (See Lake Effect's prior blog for a complete discussion of the NLRB’s approach to this issue). GC Abruzzo’s Memorandum GC 25-01 also announces that if the NLRB finds that an employer maintained an unlawful noncompete, simply rescinding the agreement will not be enough. Rather, the NLRB will impose expansive remedies to compensate the affected worker. Such remedies may include economic damages for lost or foregone job opportunities, costs related to retraining efforts, and expenses incurred in moving outside of a restricted geographic area.

In addition, GC Abruzzo’s Memorandum GC 25-01 asserts a new NLRB position that “stay-or-pay” provisions, such as training repayment contracts, quit fees, sign-on bonuses, and other types of cash payments tied to a mandatory stay period for non-supervisory employees are presumed to violate Section 7 of the NLRA. The presumption applies to any contract under which an employee must pay their employer if they separate from employment, whether voluntarily or involuntarily, within a certain time frame. An employer can only rebut this presumption of unlawfulness by proving that the provision (1) was voluntarily entered into in exchange for a benefit; (2) has a reasonable and specific repayment amount; (3) has a reasonable “stay” period; and (4) does not require repayment if the employee is terminated without cause. NLRB-ordered remedies for unlawful “stay-or-pay” provisions will vary based upon the facts, but they may include rescission of the unlawful provision, erasure of employee debt, repayment to the employee of payments already made to the employer, and compensation for other job opportunities that an employee passed up because of the unlawful stay provision.

Finally, Memorandum GC 25-01 confirms that the NLRB will prosecute preexisting stay-or-pay arrangements that fail to meet the above requirements. However, employers have a 60-day window starting on October 7, 2024, to cure preexisting provisions that advance legitimate business interests.
For advice on noncompete agreements and pay-back provisions, reach out to your partners at Lake Effect before the cure period ends on December 6, 2024. We can help ensure compliance with applicable NLRB guidance and other applicable laws relating to a broad range of employment agreements.

Lake Effect is here to answer all your questions about employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

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FTC Ban on Noncompetition Agreements Takes Effect

admin — Thu, 08 Aug 2024 00:39:30 +0000

As we previously reported, the Federal Trade Commission (“FTC”) issued its final rule on April 23, 2024, banning noncompetition agreements and related provisions. The rule will take effect on September 4, 2024, 120 days after publication in the Federal Register. As of September 4th, employers who have employees under existing noncompete agreements and related provisions, including nonsolicitation of employees and possibly provisions such as claw backs of training pay or a signing bonus , will be required to provide an explicit notice to those employees that their agreements and policies are no longer enforceable (see the FTC’s model notice here).

There is a narrow exception to the ban for senior executives who have existing agreements. Senior executives are defined as workers who earn more than $151,164 annually and who are in “policy-making positions” i.e., an organization’s president, CEO, or the equivalent, or a personal with final authority to make policy decisions controlling significant aspects of an entity. Noncompetes entered into pursuant to the bona fide sale of business entity are also excluded from the ban. There are also exemptions for certain entities, such as financial institutions and nonprofits.

To prepare for September 4th, Employers should review their existing agreements and policies to determine who will need to receive the required notice. Given pending legal challenges that could still delay or prevent enforcement of the ban, Lake Effect recommends waiting until closer to the deadline to send the notices.

In addition, employers should revise existing agreements and policies to ensure compliance going forward. Of note, employers may keep in place agreements that protect confidentiality and client relationships. However, any existing agreements that blend these permissible provisions with soon-to-be prohibited noncompetition and related provisions will have to be revised. Employers should also be mindful of applicable state laws on the matter which may impose more stringent requirements and/or penalties relating to noncompetition provisions.

As we quickly approach September 4, 2024, Lake Effect can help assess your existing agreements, customize FTC-required notices, and recommend revisions to your agreements or handbook provisions. We will do so consistent with your mission, culture, compensation philosophy, and commitment to your employees.

Lake Effect is here to answer all your questions about employment laws, regulations, and new agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

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FTC Bans Noncompete Agreements

admin — Thu, 25 Apr 2024 14:59:58 +0000

On April 23, the Federal Trade Commission (“FTC”) issued its final rule banning noncompete clauses in employment agreements. Barring a successful legal challenge (including lawsuits already filed in Texas courts), the rule will take effect 120 days after publication in the Federal Register. At that time, employers who have employees under existing noncompete agreements will be required to notify those employees that their agreements are no longer enforceable (model notice here). One narrow exception is carved out for senior executives who have existing agreements. Senior executives are defined as workers who earn more than $151,164 annually and are in “policy-making positions.” Further, the FTC noncompete ban does not apply to noncompetes entered into by a person pursuant to a bona fide sale of a business entity.

Noncompete agreements have been under recent attack from multiple governing bodies. For example, the NLRB recently issued guidance that noncompete agreements violate employees’ rights under the National Labor Relations Act. Four states have previously banned noncompetes, California, Minnesota, Oklahoma, and North Dakota, each with a different basis for its decision. A dozen other states have implemented restrictions on noncompete agreements, many with rules that subject employers to fines for non-compliance. Notably, the FTC rule specifies that it preempts all state laws that conflict with it, so less restrictive state laws addressing this issue will simply become moot.

We advise that employers act now to evaluate their employment-related agreements. Narrowly drafted trade secret related agreements, nonsolicitation agreements, and nondisclosure (confidentiality) agreements are still allowed under the rule and by the National Labor Relations Board. Lake Effect can help you evaluate your needs and recommend the right employment agreements for your business. We are also watching legal challenges to this final rule and will continue to keep you apprised.

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Employers Beware: Your Noncompete May Violate Federal Law

admin — Thu, 08 Jun 2023 14:10:22 +0000

NLRB General Counsel: Most Noncompete Agreements Violate the NLRA

Many employers require employees to sign noncompete agreements before, during, or upon separation from employment in an effort to prevent direct competition and protect business interests. This long-standing practice faces increasing resistance from state legislatures, as well as federal agencies like the Federal Trade Commission. The National Labor Relations Board (NLRB) appears poised to join the effort to invalidate such agreements. According to Memorandum GC 23-08 issued by NLRB General Counsel Jennifer Abruzzo on May 30, 2023, most noncompete agreements violate employees’ rights under Section 7 of the National Labor Relations Act (NLRA) and should be deemed unlawful. The guidance applies to both union and nonunion workplaces.

Section 7 of the NLRA protects employees’ right “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Recent NLRB decisions confirm that employees cannot waive these rights in individual contracts. (See Lake Effect’s prior blog on another NLRB decision and guidance on this issue.)

The General Counsel explains that most noncompete agreements threaten employees’ Section 7 rights because they:

Chill employees from concertedly threatening to and/or carrying out threats to resign in order to secure better working conditions.
Chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
Chill employees from soliciting co-workers to go to work for a local competitor as part of a broader course of protected activity.
Chill employees from seeking employment to specifically engage in protected activity with other workers at an employer’s workplace.

The Memorandum specifies that an employer’s desire to avoid competition does not justify infringing on a former employees’ Section 7 rights. An employer’s interests in retaining employees and/or protecting investments in employee training are likewise insufficient to excuse the chilling effects of broad noncompete provisions.

General Counsel Abruzzo does narrow the scope of her prohibition in two ways. She concedes that noncompete agreements that restrict only an individual’s managerial or ownership interests in a competing business may be lawful under the NLRA. She also notes that employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace confidentiality agreements that protect those interests. These specific confidentiality agreements thus continue to be lawful under federal labor law.

The NLRB General Counsel’s Memorandum is not binding law, but it directs field offices to scrutinize employee noncompete agreements and seek relief for employees subject to an “overbroad non-compete provision.” Considering this guidance, employers should anticipate increasing challenges to noncompete agreements and should carefully review employment agreements containing any noncompetition provisions. They should also review confidentiality agreements to ensure that they are narrowly tailored enough to withstand scrutiny. Your partners at Lake Effect can help you evaluate your agreements and monitor NLRB enforcement activities.

Lake Effect is here to answer all your questions about employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

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