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Employer unilaterally imposed noncompete agreement with unlawful provisions

By Lisa Milam-Perez, J.D.

A unionized employer unlawfully implemented a mandatory confidentiality and noncompete agreement for new hires without giving a union notice and an opportunity to bargain, the D.C. Circuit held, upholding the NLRB’s finding that the employer violated NLRA Section 8(a)(5). The appeals court also affirmed the Board’s holding that two specific provisions of the agreement—an at-will clause and a prohibition on “interference with relationships”—independently violated Section 8(a)(1) of the Act (Minteq International, Inc. and Specialty Minerals, Inc. v. NLRB, August 28, 2017, Sentelle, D.).

The manufacturer was a party to a collective bargaining agreement with Local 150 of the International Union of Operating Engineers, which represented a group if its employees. Without notice to the union, the employer implemented a new noncompete and confidentiality agreement and required newly hired employees to sign on as a condition of employment. The mandatory agreement restricted employees from working for another company connected in any way to the manufacturer’s business until at least 18 months after their employment ends. The union challenged the agreement because it was imposed without bargaining; it also took issue with specific provisions that, in its view, had the potential to interfere with employees’ Section 7 rights. The NLRB found the agreement was a mandatory subject of bargaining, and so the employer violated the Act by unilaterally implementing it, and that two of its specific terms were overbroad and ran afoul of the Act. Finding substantial evidence to support the Board’s holdings, the appeals court denied the employer’s petition for review.

Mandatory subject of bargaining. The employer argued that it had the right to impose the new agreement because it was at “the core of entrepreneurial control” and had “only an indirect and attenuated impact on the employment relationship.” But as the Board had found to the contrary, the agreement had a direct economic impact on employees: It imposed a cost on them in the form of lost employment opportunities, and also imposed “economic opportunity costs on employees by broadly restricting their ability to benefit from their discoveries, inventions, and acquired knowledge” obtained by working for the company. Consequently, the agreement was precisely the kind of matter that was suitable for bargaining, the appeals court said. Moreover, this holding aligned with longstanding Board precedent, which has found noncompete and nondisclosure provisions are mandatory bargaining subjects.

Not covered by CBA. While typically true that noncompete provisions are mandatory subjects of bargaining, the employer argued nonetheless it had no bargaining duty here because the parties had already resolved the matter in the CBA—namely, in its management rights clause. The management rights clause was admittedly broad, but it contained the usual fare—the “typical management prerogatives,” the court observed. There was nothing in the language of the provision that would allow the employer to impose post-employment obligations on bargaining unit members, as the noncompete agreement did. Nor did it sweep so broadly that it could bind the employees’ “heirs, successors, and assignees,” as the employer sought to do. Therefore, it could not be said that the parties already had bargained over the subject.

“Interference with relationships” clause. The noncompete agreement included a provision that barred an employee, either directly or indirectly, from soliciting a customer or supplier to terminate or otherwise alter its relationship with the employer. The Board held that employees would likely construe this clause as interfering with their Section 7-protected right to appeal to customers to boycott the company in support of a labor dispute. The court found this conclusion “at least reasonably defensible.”

At-will employment. The parties’ CBA imposed a “just cause” discharge requirement once employees made it to six months of employment. But the noncompete agreement included this statement: “Employee acknowledges that this Agreement does not affect Employee’s status as an employee-at-will and that no additional right is provided herein which changes such status.” There was no indication this provision applied only to probationary employees. As such, it could reasonably lead employees to believe the CBA’s just-cause provision was no longer in effect, and that employees now could be removable at will at any time during the course of their employment. As such, it was unenforceable.

The employer’s new noncompete agreement did contain certain terms that it would have been within its management rights to implement, such as a provision protecting its confidential information. However, it contained no severability clause that would have allowed the Board to surgically rescind the problematic provisions, so it was unlawful to unilaterally implement the entire agreement as a whole.