Non-Compete Agreement: What Employers Can Learn From NLRB’s First Case

Reviewing the board’s action against Berry Green’s post-employment stance

At a Glance:

• In February 2023, the NLRB held that certain overbroad confidentiality, non-disclosure, and non-disparagement provisions run afoul of federal labor law in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023).
• Since then, Berry Green Management, Inc., a Michigan-based cannabis company, reached a settlement with employees in the NLRB’s prosecution of an allegedly unlawful non-compete agreement.

Highlights:

• The article discusses the NLRB's recent prosecution and settlement of a non-compete case, indicating implications for employers with overbroad provisions found in violation of labor law.
• The NLRB's General Counsel issued guidance stating most non-compete provisions violate the NLRA, expanding scrutiny to include non-solicitation and other restrictive covenants.
• Berry Green's case highlights the focus on broad non-solicitation provisions and overbroad non-compete clauses, urging employers to review and tailor post-employment agreements.
• Employers must comply with evolving restrictive covenant laws to avoid financial challenges from potential unfair labor practice charges and ensure employee rights protection.

In early May 2023, around the same time as the National Labor Relation Board’s (NLRB or the Board) General Counsel, Jennifer Abruzzo, issued guidance memorandum GC 23-08 to all Regional Directors, Officers-in-Charge and Resident Officers stating that, in her opinion, most non-compete provisions violate the National Labor Relations Act (NLRA), private employer Berry Green Management, Inc. (Berry Green), a Michigan-based cannabis company, reached a settlement with employees in the NLRB’s prosecution of an allegedly unlawful non-compete agreement. 

Because the employees requested the withdrawal of their unfair labor practice charge after agreeing to the private settlement, certain NLRB prosecution documents became available to the public.1 While these documents are not precedential, they can provide a glimpse into the NLRB’s playbook and can help employers better understand how the NLRB might, in the near future, attempt to regulate (and litigate) private employer’s post-employment restrictive covenants, including not just traditional non-compete agreements, but also non-solicitation, and other “non-interference” restrictions.

The NLRB’s complaint against Berry Green alleged that the company violated the NLRA by, among other things, maintaining a broad non-solicitation provision in its confidentiality, non-solicitation and non-compete agreement. The non-solicitation provision prohibited Berry Green’s employees from recruiting co-workers, contractors, or salespeople to leave Berry Green and join a competitor during the term of the agreement. It also prohibited employees from encouraging anyone to reduce or discontinue their business relationship with Berry Green. 

This anti-interference-with-business-relationships provision is similar to a provision the Board declared unlawful in 2016 in a decision, Minteq International, Inc., 364 NLRB 721 (2016), which the General Counsel cited in her recent guidance memorandum, GC 23-08. In Minteq International, the employer maintained an “interference with relationships” provision in its confidentiality agreement, which prohibited employees from soliciting or encouraging the employer’s business partners to terminate or alter their relationships with the employer. 

The Board found that the non-solicitation provision was unlawful, holding that it restricted the employees’ ability to communicate with customers and other business partners in a concerted effort to improve the terms and conditions of their employment.

In addition to the non-solicitation provision, the NLRB’s complaint against Berry Green addressed non-compete provisions, alleging that a two-year post-employment restriction on working for other employers in the same industry that was geographically limited to the state of Michigan was overbroad and unlawful under Section 8 of the NLRA. 

With respect to remedies, the NLRB’s complaint requested the Board to order Berry Green to rescind the allegedly unlawful non-compete, non-solicitation, and confidentiality provisions as well as rescind any discipline related to those provisions and make whole any employees who suffered “financial loss” as a result of enforcing those provisions. The General Counsel did not specifically indicate which “financial loss” may be included or demonstrable but noted that it would include reasonable “search-for work and interim employment expenses.”

Employers should seize this opportunity to review their post-employment agreements. Because the Berry Green case settled before a hearing before the Board, the NLRB’s General Counsel and Regional Directors likely will have other business in their sights for targeting overbroad non-solicitation and non-compete agreements. Often a company will require all of its employees to sign non-compete or non-solicitation agreements, even though such agreements might not be necessary for the entire workforce. 

In addition, non-compete and non-solicitation agreements should be narrowly tailored to address the specific business interest that the employer has a right to protect. Thus, for example, customer non-solicitation agreements should be tailored to the customers with whom the employee had dealings with. The uncertainty of rapidly changing law regarding restrictive covenants, coupled with the possibility of having to defend an unfair labor practice charge against the General Counsel’s aggressive prosecution, could present significant financial challenges to employers. 

In February 2023, the NLRB held that certain overbroad confidentiality, non-disclosure, and non-disparagement provisions run afoul of federal labor law in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023). Since that decision, the General Counsel has issued two guidance memoranda articulating her view on the lawfulness of such provisions and signaling her intent to advocate expanding the decision to other restrictive covenants like non-compete agreements.

The Berry Green case highlights that while non-compete agreements tend to get the spotlight in the headlines, the NLRB’s General Counsel remains focused on a variety of restrictive covenants that employers commonly require its employees to agree to, including non-solicitation of customers, employees, and other business relationships (i.e., vendors, suppliers, etc.). These provisions should be reviewed as well for overbreadth and necessity. 

Footnote:
¹.Bloomberg Law obtained redacted documents from the NLRB’s investigation and prosecution through a Freedom of Information Act request. 

	Matt Fontana is a Partner at Faegre Drinker. Matt represents management in employment and a variety of traditional labor matters. He also handles a broad range of employment matters under local, state, and federal laws.
	Lawrence Del Rossi is a Partner at Faegre Drinker. Lawrence is an adviser to business leaders, human resource professionals, and internal legal and compliance professionals on their most challenging labor and employment problems.
	Daniel Dorson is an Associate at Faegre Drinker. Daniel represents and advises employers on labor and employment issues with an emphasis on union relations and organizing.