An administrative law judge for the National Labor Relations Board has ruled that an Indiana HVAC company violated the National Labor Relations Act by maintaining unlawful noncompete and nonsolicitation policies in its employment agreements.

The decision in J.O. Mory, Inc. marks what may be the first NLRB ruling to find such provisions unlawful.

The judge also found the company unlawfully terminated an employee for engaging in union activity protected under the NLRA, and that it had an unlawful “Union Free Statement” in a handbook that employees were required to sign as a condition of employment.

Case background

The case involved a commercial HVAC technician who was a “salt” – a union organizer who takes a non-union job with the intention of organizing the workforce. The employer, J.O. Mory, terminated the employee after discovering he had falsely claimed previous employment at a non-union shop. However, Administrative Law Judge Sarah Karpinen found that the discharge was unlawful, as it was in retaliation for the employee’s protected union organizing activities.

Noncompete and nonsolicitation provisions scrutinized

While the wrongful termination finding is noteworthy, Karpinen’s analysis of the company’s employment agreement has broader implications. The judge examined three provisions:

A nonsolicitation clause prohibiting employees from encouraging other employees to leave the company, both during employment and for 24 months after.
A noncompete provision barring former employees from working for or engaging with similar businesses for 12 months post-employment.
A requirement that employees report all job offers or solicitations received from third parties.

**Applying the Stericycle standard**

In evaluating these provisions, Karpinen applied the NLRB’s recent Stericycle framework for assessing workplace rules.

That standard, established in August 2023, requires considering how a “reasonable employee” who is economically dependent on the employer would interpret the rule.

Under that analysis, Karpinen found that all three provisions could chill employees’ rights to engage in protected activities. She explained that the noncompete agreement could make a reasonable employee afraid to engage in protected activities. Workers might fear being fired for “rocking the boat” and that they’d then be barred from taking a new job in their field.

The judge also found that rules against encouraging coworkers to leave or requiring the reporting of job offers could limit protected activities. These rules might stop workers from sharing information about union benefits, helping unionize other workplaces, or making group threats to quit over workplace issues.

Notably, the decision emphasized how these clauses could deter employees from participating in “salting” campaigns. Moreover, the judge determined that the employer failed to demonstrate that the provisions addressed any legitimate business interest that couldn’t be addressed through more narrowly tailored rules.

Implications for employers

The ruling aligns with the current NLRB General Counsel’s stated position on noncompete agreements. In May 2023, the General Counsel issued a memo arguing that most noncompete agreements violate the NLRA.

While the June 2024 ruling doesn’t render all noncompete and nonsolicitation provisions unlawful, it suggests that overly broad restrictions may face increased scrutiny, particularly when applied to non-managerial employees.

Employers should stay attentive to potential appeals and other developments and be prepared to adjust their employment agreements if necessary.