Employment Law Observer

The General Counsel of the National Labor Relations Board ("NLRB") issued Memorandum GC 25-01 on October 7, 2024, which establishes her intent to "urge the Board not only to find certain non-compete provisions unlawful, but also, as fully as possible to remedy the harmful effects on employees when employers use and apply them."

On August 20, 2024, Judge Ada Brown of the United States District Court for the Northern District of Texas set aside and barred the nationwide implementation and enforcement of the FTC’s Final Noncompete Rule.

In the spirit of the season, we are using our annual "12 days of the holidays" blog series to address new California laws and their impact on California employers. On the fourth day of the holidays, my labor and employment attorney gave to me four calling birds, SB 699, and AB 1076.

On June 20, 2023, the New York State Legislature voted to pass a bill that will ban almost all non-compete agreements. Currently awaiting Governor Kathy Hochul's signature, the bill prohibits an "employer or its agent, or the officer or agent of any corporation, partnership, limited liability company, or other entity" from seeking, requiring, demanding or accepting a non-compete agreement from a covered individual. Additionally, the bill voids "every contract by which anyone is restrained from engaging in a lawful profession, trade or business of any kind."

The General Counsel of the National Labor Relations Board (the Board) took aim at non-compete and non-solicitation agreements in Memorandum GC 23-08, issued on May 30, 2023. The General Counsel of the Board, Jennifer Abruzzo, said she believes that except in limited circumstances, the "proffer, maintenance, and enforcement of non-compete agreements" violates Section 8(a)(1) of the National Labor Relations Act (the Act). Memoranda such as this reflect the prosecutorial perspective of the General Counsel's office and direction to the Regional Directors on case handling. That said, Memorandum GC 23-08 is not a decision of the Board, a rule promulgated by the Board under its rule-making authority, or the result of a challenge to a Board decision in federal court. However, it certainly forecasts how this General Counsel and the Regions will assess non-competes and handle unfair labor practice charges involving these covenants.

Last week, the U.S. District Court for the Northern District of Florida held that Florida can enforce a law that voids noncompete agreements between doctors and their employers. The recently adopted legislation—section 542.336, Florida statutes—voids any noncompete agreements between physicians and specialty physician groups when the group employs all the physicians practicing a particular specialty within a given Florida county. In 21st Century Oncology, Inc. v. Moody, the Northern District reasoned that the law doesn't unlawfully interfere with private agreements, and any such impairment is outweighed by the law's significant, legitimate public purposes.

Massachusetts Governor Charlie Baker signed into law a comprehensive non-compete law that will take effect on October 1, 2018 (“the Act”). It applies to all non-competes entered after the effective date. The Act follows several attempts by the Massachusetts Legislature to agree on a reform that spanned several years. Here are the highlights:

In Minteq v. NLRA, the United States Court of Appeals for the District of Columbia Circuit held an employer committed an unfair labor practice under Section 8 (a)(5) by failing to notify and bargain with a union over its requirement that new employees sign a non-compete and confidentiality agreement as a condition of employment.

Earlier this year, we notified you about the passage of the Defend Trade Secrets Act of 2016 (DTSA) and how it affects employers.  On August 8, 2016, a U. S. District Judge in the Southern District of Florida dismissed one of the first cases filed under the DTSA, M.C. Dean, Inc. v. City of Miami Beach, Florida, Case No. 16-CV-21731 (S.D. Fla.) 

When continued employment is the sole consideration for a post-employment restrictive covenant (such as a noncompetition agreement), the Illinois Supreme Court requires that an employee be continually employed for a substantial period of time. Generally, a period of two-years is an adequately substantial period.  A strong dissent in a new Illinois opinion suggests that not all judges are on board with the bright-line rule recently endorsed by several Illinois courts.

On April 30, 2015, the Wisconsin Supreme Court took a stand on a hot-button for employers by holding that continued at-will employment is legal consideration that will support a reasonably drafted restrictive covenant signed by a current employee. Runzheimer International, Inc. v. Friedlen, 2015 WI 45.

Pretty much everyone knows that California courts do not favor covenants not to compete. We even have our own state laws that address this very issue (Business & Professions Code section 16600). But what about provisions in employment agreements, separation agreements, or even settlement agreements in which an employee agrees to give up his right to future employment with the company? Is that lawful? The Ninth Circuit just considered this very issue. 

A company bought a business that marketed finance and insurance products to the automotive industry. After the sale, the company made an employment offer to an employee, subject to the employee's agreement to a two-year non-solicitation and non-competition covenant. The employee specifically negotiated a provision that the covenant would not apply if he was terminated without cause during the first year of his employment. The employee started with the company on November 1, 2009 and gave his two-week notice on February 1, 2010. The court held that a job offer itself, standing alone, is not sufficient support for a restrictive covenant unless there has been a period of substantial employment. Additionally, the court went on to create a new bright-line rule that "substantial employment" is a period of two years or more. Many observers believed the holding starkly diverged from established case law and hoped the issue would be taken up by the Illinois Supreme Court. On September 25, 2013, the Illinois Supreme Court denied the defendant's Petition for Leave to Appeal. Employers should evaluate the status of the restrictive covenants currently in place with employees and determine whether additional consideration is required in light of this holding.

The U.S. Supreme Court held that the Oklahoma Supreme Court erroneously struck down a noncompete agreement, declaring it invalid under state law. The problem with the state court's decision, however, was that there was an arbitration agreement in the employer's employment agreements; thus, the U.S. Supreme Court found that the state court should have allowed an arbitrator to determine whether the non-compete was valid or not.  

For 36 years, agreements in which Illinois employees agreed to refrain from competitive activity following termination of employment have been judged under a standard requiring the employer to prove that it had a legitimate business interest for restricting post-employment competition. Two Illinois appellate decisions in 2009-2010 rejected this requirement, concluding that it had been invented by the appellate courts and never endorsed by the Illinois Supreme Court. On December 1, 2011, in Reliance Fire Equipment Co. v. Arredondo, No. 11871, the Illinois Supreme Court put that idea to rest, holding that it has been a part of Illinois law for over a century. This was the first Illinois Supreme Court decision considering what business interests could justify a non-compete agreement since the early 1970s. This issue dominated litigation over these agreements throughout that period.