FORT LAUDERDALE NON-COMPETE LITIGATION: NATIONAL LABOR RELATIONS BOARD PROHIBITS NON-COMPETE

Non-compete agreements have received significant attention this year after the Federal Trade Commission issued a rule on April 23, 2024, banning most employee non-compete agreements. The rule was scheduled to go into effect on September 4, 2024. However, on August 20, 2024, a court in the United States District Court for the Northern District of Texas permanently enjoined the rule from going into effect. See Ryan LLC v. FTC, Case No. 3:24-CV-00986, 2024 WL 3879954 (N.D. Tex., Aug. 20, 2024). That injunction has not deterred the Federal Government from trying to eliminate or limit non-competes in the workplace. The National Labor Relations Board (NLRB), the agency that enforces the National Labor Relations Act (NLRA) is also taking aim at employee non-compete agreements in J.O. Mory, Inc., NLRB Case No. 25-CA-309577. The Fort Lauderdale business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration

On June 14, 2024, an administrative law judge with the NLRB issued a decision in J.O. Mory, Inc., finding that an employer’s non-compete and non-solicitation provisions violated Section 7 of the NLRA. In J.O. Mory, a union organizer began working for an HVAC company without revealing that he was a union organizer. The company required him to sign an employment agreement that contained a non-compete provision and a non-solicitation provision. The non-compete provision prohibited employees from working for a competitor for twelve months after the employment terminated. The non-solicitation provision prohibited employees from soliciting other employees to leave employment with the company for twenty-four months after employment terminated.

The union organizer eventually revealed to the company that he intended to recruit the company’s employees to join a union. The company terminated the organizer’s employment as a result. The organizer then filed a complaint with the NLRB alleging he was terminated in violation of the NLRA for being a member of a union and engaging in union activities. The organizer also alleged that the company’s non-compete provision and non-solicitation provision violated Section 7 of the NLRA. Section 7 of the NLRA states employees have the right to engaged in “concerted activities” such as forming and joining labor unions. 29 U.S.C. § 157.

The administrative law judge ruled in favor of the organizer. The judge found that the non-compete provision was “overly broad in scope and would deter a reasonable employee from engaging in protected activity . . . .” The judge found that the non-compete provision “chills” Section 7 rights because an employee would be unwilling to engage in protected activity (such as union activities and concerted activities) out of fear that they would be fired and unable to work for another HVAC company in their geographic area. The administrative law judge also found that the non-solicitation provision “chills” Section 7 rights because employees would be deterred from soliciting other employees to work for other employers in the area to recruit the employees of those other employers to join a union. The ALJ ordered the employer to rescind the non-compete and non-solicitation provisions of its employment agreement.

On July 10, 2024, the company filed exceptions to the administrative law judge’s ruling. This essentially acts as an appeal because an NLRB panel (i.e. the “Board”) will hear the case and issue a ruling. The NLRB should issue a final ruling sometime in the next few months.

The NLRB’s decision in J.O. Mory could have significant implications on employer use of non-compete and non-solicitation provisions. If the NLRB upholds the administrative law judge’s decision, employers will need to be cautious in using non-compete and non-solicitation provisions to avoid the risk of an NLRB proceeding.

The Fort Lauderdale business litigation lawyers of the Mavrick Law Firm also represent clients in Miami , Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.