The National Labor Relations Board (NLRB) plays an important role in shaping the landscape of employer-employee relations in the United States. NLRB decisions and guidelines can fundamentally shift the dynamics between employers and employees, requiring employers to change existing policies and adapt new ones. 2023 has been an active year for the NLRB, with several pivotal NLRB decisions and NLRB general counsel guidance memos being issued. This article seeks to explain some of the most consequential NLRB actions this year, emphasizing their implications and providing employers with the insights they need to navigate the evolving employment law terrain.
New Burden-Shifting Standard for Evaluating Work Rules
On August 2, 2023, the NLRB delivered an important ruling in the Stericycle, Inc. case, which should prompt employers to reconsider the language and implications of their handbooks and policies.
The crux of the NLRB’s ruling is the introduction of a new standard for determining the legality of work rules. Under this standard, a work rule could be deemed violative if an employee might reasonably see it as coercive. According to the ruling, the NLRB “will interpret the rule from the perspective of an employee who is subject to the rule and economically dependent on the employer.” Once this burden is met, an employer may rebut the presumption by proving (1) that the rule advances a legitimate and substantial business interest and (2) that the employer is unable to advance that interest with a more narrowly tailored rule.
This ruling is its departure from the previous two-factor balancing test, a framework established in cases like Boeing Co.and LA Specialty Produce Co. This past test sought to harmonize the potential chilling effect on employees’ rights with employers’ genuine business interests. The Stericycle decision takes a sharp turn, deemphasizing employers’ business interests in the evaluation process. In the Stericycle decision, the NLRB concluded that the standard established in Boeing and LA Specialty Produce allowed employers to adopt work rules that chill employees’ exercise of their rights under the NLRA.
Severance Agreements That Require Employees to Broadly Waive Labor Law Rights Are Prohibited
On February 21, 2023, the NLRB issued a decision that impacts the use of non-disparagement and confidentiality clauses in employee agreements. In the McLaren Macomb decision, the NLRB ruled that an employer violates the National Labor Relations Act (NLRA) “when it proffers a severance agreement with provisions that would restrict employees’ exercise of their NLRA rights,” including confidentiality and non-disparagement provisions, because they may dissuade protected employee activity. This decision has implications for all Michigan employers—not only those with unionized workforces—whose employment agreements contain such clauses.
Based on NLRB rulings during the prior administration, employers were permitted to use separation agreements that prohibited a former worker from disparaging the company and disclosing the terms of a severance package. The NLRB reversed this stance with the McLaren Macomb decision.
NLRB GC Asserts that Non-Compete Agreements Violate National Labor Relations Act
On March 22, 2023, the NLRB General Counsel (GC) Jennifer Abruzzo issued an enforcement memorandum (GC Memo 23-08), asserting that particular non-compete provisions in employment contracts and severance agreements violate the NLRA. While not legally binding, this memo is a strong indication of continued efforts among both state and federal lawmakers and regulatory agencies to curtail the use of non-compete agreements.
The crux of GC Memo 23-08 is an argument that non-compete agreements typically infringe on employee rights protected by Section 7 of the NLRA, unless framed within narrowly tailored “special circumstances justifying the infringement on employee rights.” The memo rejects the notion that a desire to avoid competition from a former employee is a legitimate business interest that could support a special circumstances defense.
The memo asserts that non-compete clauses broadly infringe on employees’ Section 7 rights and thus, are unlawful unless they are carefully circumscribed. Abruzzo questions the blanket justification of retaining employees or safeguarding special investment in employee training and argues that they seldom, if ever, justify an expansive non-compete provision.
Among the protected activities the memo argues that non-compete agreements could infringe upon include:
- Threatening to resign collectively to secure better working conditions;
- Executing concerted threats to resign to improve working conditions;
- Actively seeking or accepting employment with a local competitor to improve working conditions;
- Encouraging colleagues to join a local competitor as part of broader concerted activity; and
- Pursuing employment, at least in part, to engage in protected activity, including union organizing, with other workers at their employer’s workplace.
However, the memo concedes that non-compete provisions may be lawful if they restrict only managerial or ownership interests in a competing business, independent contractor relationships, or if they protect proprietary information or trade secrets.
Takeaways for Employers
1. Re-assess Work Policies: With the Stericycle ruling in play, it’s imperative to revisit employee handbooks and ensure policies don’t come across as coercive. Rules should be evaluated from an employee’s standpoint to avoid potential pitfalls.
2. Rethink Non-Disparagement Clauses: Following the McLaren Macomb decision, employers should ensure that their severance agreements don’t infringe upon employees’ NLRA rights. This means revising or removing non-disparagement and confidentiality clauses which could be seen as hindering protected activities.
3. Tread Carefully with Non-competes: In light of GC Memo 23-08, non-compete agreements need to be evaluated carefully. Although the memo is not binding, it indicates a trend towards federal curtailment of non-compete agreements nationwide. This shift aligns with the Federal Trade Commission’s Notice of Proposed Rulemaking in January 2023, which recommended a nationwide ban on non-compete agreement. And on April 12, 2023, House Bill No. 4399 was introduced in the Michigan House of Representatives, which would place more restrictions on Michigan employers’ use of non-compete clauses, including banning non-competes with minors or low-wage workers.
4. Stay Updated and Seek Counsel: The employment law landscape is evolving rapidly. Employers should stay informed of NLRB decisions and guidance and seek counsel from an employment lawyer to ensure compliance.
This has been an active year for employment law, with the NLRB taking significant steps that reshape the dynamics of the employer-employee relationship. Employers need to be agile, adaptive, and proactive in reviewing and revising their policies and agreements. By doing so, they can safeguard their interests while respecting and upholding the rights of their employees. As the landscape continues to evolve, a careful and informed approach will be essential for navigating the challenges and opportunities ahead. If you have questions or require assistance, please contact Zana Tomich.