Tag Archives: non-compete

June 2023
Leave a comment
Employment Law

The NLRB Takes Aim At Non-Compete Provisions

The NLRB has been flexing its muscle this year. First came the McLaren Macomb decision, where the Board found that confidentiality and nondisparagement provisions in severance agreements for non-supervisors violated the National Labor Relations Act. On May 30th the NLRB General Counsel issued a memorandum and took aim at noncompete agreements.

The General Counsel’s memo states that except in limited circumstances the “proffer, maintenance and enforcement ” of noncompete provisions violates the Act, because, in her opinion, noncompete provisions “reasonably tend to chill employees” in the exercise of their Section 7 rights under the Act to engage in concerted activity for mutual aid and protection in their employment. The General Counsel listed five specific types of protected activity under Section 7 that is chilled by noncompete provisions:

  1. Concertedly threatening to resign to demand better working conditions, because the threats would be futile due to the noncompete;
  2. Carrying out concerted threats to resign or concertedly resigning in an effort to secure better working conditions;
  3. Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
  4. Soliciting coworkers to go to work for a local competitor as part of a broader course of protected concerted activity; and
  5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.

The General Counsel opined that facts which are typically recognized by most courts as special circumstances which justify a noncompete, including specialized training and protecting trade secrets, are insufficient to overcome the chilling effect on Section 7 rights. Her rationale is that less restrictive means, such as a longevity bonus and a confidentiality agreement, protect those interests without the unreasonable chilling effect.

The General Counsel opined that noncompetes that only restrict managerial or ownership interests in a competing business and noncompetes with a true independent contractor do not violate the Act. She also stated that there may be other special circumstances to justify a narrowly tailored noncompete that would not violate the Act.

The General Counsel also encouraged the Board to award make whole relief, lost pay and benefits for example, if there is proof that an overbroad noncompete caused the employee to lose opportunities for other employment.

The memo is not law, but you can be certain that the Board with an existing or future case will try to make it the law in the near future.

Tagged , ,
March 2014
Leave a comment
Employment Law

What To Do When A Key Employee Walks Out The Door

You have just been told that one of your key employees is resigning to go to work for a competitor.  You will be facing competition from him or her in the near future.  In order to protect your company’s interests and prepare yourself for that competition employers should take the following steps:

  • If an employment contract exists which contains a non-compete provision, a non-solicitation of customers provision and/or other restrictive covenants get with legal counsel as soon as possible (You should have key employees sign contracts which have enforceable restrictive covenants).  The first step may be to send a cease and desist letter or to file a lawsuit seeking injunctive relief, depending on all the facts and circumstances.  But that determination needs to be made as quickly as possible so that damage to the company can be minimized and certain legal rights of the company are not waived or prejudiced by failing to act quickly.
  • Conduct an exhaustive search to determine if the employee took anything that belongs to the company.  This would include a forensic search of the computer and smart phone and a search of relevant paper files.  Remember, even if the employee does not have a non-compete agreement if he or she takes certain company information the employer may have a claim for breach of a confidentiality agreement, breach of fiduciary duty, a violation of the state’s trade secret law and conversion of property.  If information was taken from a computer there also may be claims under certain federal laws.
  • Contact customers to notify them of the employee’s departure and tell them who will be the new point of contact.  This contact serves two purposes.  First, it will show the customer you care and hopefully allow you to maintain the relationship.  Second, in the course of this call you might learn whether the former employee has contacted the customer.  If you have a non-solicit in place the employee’s contact with the customer might violate that agreement and give rise to other claims, depending on the information that was shared and discussed.
  • Meet with your management team to discuss the employee’s departure and set out a plan of action.  In addition to setting a plan this meeting may also provide you with valuable information regarding the former employee’s plans and whether he or she has contacted any of your other employees.  Contact with other employees could violate an anti-raiding provision in the employee’s contract and, in some circumstances, could give rise to a claim for tortious interference with contract or business relations.
  • Obtain a resignation letter.  The resignation letter will generally defeat any unemployment claim that the employee may pursue if things don’t go well in his or her new job.  Furthermore, if the employee is dishonest in the letter about the reason for his or her departure (e.g. the letter states the resignation is to spend more time with the family when the reality is the person is going to work for a competitor) the letter can be very damaging to the employee in future litigation.

In today’s society you will likely lose a key employee to a competitor.  Taking these steps and potentially others, will help you protect your company’s interests and minimize the harm to the business.

Tagged , , ,