NLRB Opens New Front in Campaign Against Contractual Restrictive Covenants, Now Targeting No-Poach Provisions in a Business’ Company-to-Company Agreements

On September 12, 2024, the Regional Director of the National Labor Relations Board’s (“NLRB”) Region 22 in Newark, New Jersey, issued an unfair labor practice complaint against a New Jersey building services company, alleging that employee non-hire (or “no poach”) provisions in the company’s contracts with its building clients violate the National Labor Relations Act (the “Act”).

According to the NLRB’s news release, the complaint alleges that Planned Companies D/B/A Planned Building Services, which is a janitorial, building maintenance, and concierge services provider, “has maintained provisions in its contracts with its client buildings that interfere with, and are inherently destructive of, workers’ rights under Sections 8(a)(1) and (3) of the National Labor Relations Act.”  It further alleges that “Planned Companies restricts its client buildings from soliciting its employees to work for them in a similar job classification for a period of six months after the agreement is terminated, or from hiring employees after they leave Planned Companies’ employment. Any entity retained by the client building to replace Planned Companies is also bound by the hiring restriction.” 

A hearing before an NLRB Administrative Law Judge has been set for November 12, 2024.

This complaint is but the latest in the NLRB’s ongoing campaign against contractual restrictive covenants, such as noncompete and non-solicitation provisions in employment agreements, which was foreshadowed in July 2022 memoranda of understanding the NLRB entered into with the Federal Trade Commission, and with the  Department of Justice’s Antitrust Division.  The NLRB’s campaign then began in earnest in May 2023, when NLRB General Counsel Jennifer Abruzzo issued a memo taking the position that nearly all non-compete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the National Labor Relations Act.  To date, this effort has focused on agreements between employers and employees, but the complaint in the Planned Companies case takes the NLRB on the path of finding provisions in business to business agreements to violate employees’ rights under the Act.

The NLRB’s efforts so far has yielded some results.  In January 2024, NLRB Region 9 in Cincinnati obtained a settlement involving non-compete and training repayment provisions that it contended restricted employee mobility.  On June 13, 2024, an NLRB Administrative Law Judge ruled that non-compete and non-solicitation provisions in Indiana-based HVAC company J.O. Mory, Inc.’s contracts with employees violated the Act. That case is still under review by the Board in Washington following an appeal by the company.

The latest complaint, issued by NLRB Region 22-Newark against Planned Companies, differs from the earlier actions in that it targets restrictions contained in company-to-company agreements, rather than in employment agreements.  The NLRB’s purpose, however, is similar: to remove obstacles to employee mobility.  This novel approach by the NLRB signals increased scrutiny of inter-business dealings that do not directly touch on what have historically been considered to be employee terms and conditions of employment.  This is based on the General Counsel’s stated position that any restrictions on employees’ ability to address their terms of employment, whether by activity targeting their existing employers or by changing jobs, interferes with their rights under the Act.

Employers should be aware of the NLRB’s aggressive position regarding restrictive covenants, but also take note that NLRB decisions are subject to federal Circuit Court review and, perhaps, Supreme Court review.  Depending on jurisdiction, many narrowly-drawn and reasonable noncompetition and non-solicitation contractual provisions do remain viable. However, given the NLRB’s policy of non-acquiescence to individual Circuit Court decisions, unless and until the Supreme Court weighs in (or there is a change in the political party controlling the NLRB) an employer may potentially have to be willing to first litigate these issues against the NLRB.