Over the past year, we’ve seen an increased focus from federal regulators on limiting the scope of restrictive covenants in employment agreements such as non-compete, non-disclosure, and confidentiality agreements:
- In January of 2023, the Federal Trade Commission issued a Notice of Proposed Rulemaking that would ban employers from imposing non-competes upon employees in most instances. It is anticipated that the FTC will vote on this proposal in April of this year.
- In February of 2023, the National Labor Relations Board (“NLRB”) issued its McLaren Macomb decision (372 NLRB No. 58 (2023)) finding that offering employees severance agreements with broad confidentiality and non-disparagement provisions violated the National Labor Relations Act (“NLRA”).
- In March of 2023, the NLRB’s General Counsel issued a Memorandum offering Guidance in Response to Inquiries about the McLaren Macomb Decision which included the following question and answer:
“How does this decision affect other employer communications with employees, such as pre-employment or offer letters?
Based on extant Board law, overly broad provisions in any employer communication to employees that tend to interfere with, restrain or coerce employees’ exercise of Section 7 rights would be unlawful if not narrowly tailored to address a special circumstance justifying impingement on workers rights. “
- In May of 2023, the NLRB’s General Counsel issued a Memorandum to its Regional Directors, Officers-in-Charge, and Resident Officers, opining that non-compete provisions in employment agreements violate the NLRA except in limited circumstances. (This memorandum does not currently have the force of law.)
- In September of 2023, the Equal Employment Opportunity Commission (“EEOC”) released its Strategic Enforcement Plan, outlining six subject matter priorities, including “Preserving Access to the Legal System,” including a focus on “overly broad waivers, releases, non-disclosure agreements, or non-disparagement Agreements”
What does this mean for Employers/Employees?
These developments evidence an increasing scrutiny of employers’ ability to restrict employees’ activities in these areas. This means that employers should take a close look at onboarding and severance documents and policies to make sure they are narrowly tailored to specific circumstances and with this new focus in mind. And it means that employees should carefully review employment documents and attempt to resolve any ambiguities or concerns before they sign the documents and before any issues arise.
Further, given that the FTC’s proposed rulemaking has not been finalized, and NLRB memoranda and EEOC enforcement plans define regulatory focus but are not law, it is anticipated that this area of the law will continue to evolve over time. Employers and employees should make sure they stay up-to-date on any new developments, and that they consult experienced legal counsel to be fully advised of their rights and obligations under the law.