By Thomas P. Hubert and Joseph F. Lavigne, Jones Walker LLP
For decades, employers in virtually every industry have relied on a host of employment-contract clauses to protect trade secrets, proprietary information, goodwill, and other tangible and intangible assets. The health care industry is no exception; non-compete, non-disclosure, non-solicitation, and other terms have long been standard in employment agreements between businesses and their senior executives, medical professionals, administrative staff, and more.
Over the past several years, however, U.S. federal agencies have sent a series of shots across employers’ bows, making it clear that they are increasing their scrutiny of such agreements. Most recently, top leadership within the National Labor Relations Board (NLRB), the Federal Trade Commission (FTC), and the Department of Justice (DOJ) have all leaned heavily into the theory that non-compete and similar agreements stifle competition and the ability of employees to organize.
Among other developments:
- In July 2022, the NLRB signed a memoranda of understanding (MOU) with the Federal Trade Commission (FTC), which noted that the agencies were combining their efforts to “root out practices that harm workers in the ‘gig economy’ and other labor markets, to enhance the enforcement of federal laws and regulations administered by the agencies, and to promote interagency collaboration through information sharing, cross-agency training, and coordinated outreach.” In particular, the MOU noted that the National Labor Relations Act (NLRA) “guarantees the rights of employees to join together to improve their wages and working conditions, to organize a union and bargain collectively, and to engage in other protected concerted activity.”
- The same month, the NLRB and Antitrust Division of the DOJ signed a separate MOU proclaiming the two organizations’ commitment to coordinate efforts to ensure that workers are able to exercise their rights and to protect competitive labor markets. The agencies pledged to “share information on potential violations of the antitrust and labor laws, collaborate on new policies and ensure that workers are protected from collusion and unlawful employer behavior.” The agencies also agreed to refer, to each other, potential violations that they discover in their own investigations.
- In a February 21, 2023, decision in McLaren Macomb, the NLRB determined that employers may not offer employees severance agreements that include confidentiality, non-disparagement and other provisions that require employees to broadly waive their rights under the NLRA.
- Finally, on May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued an agency-wide memo conveying her opinion that, except in limited circumstances, non-compete provisions in employment contracts and severance agreements violate Section 7 of the National Labor Relations Act (NLRA). Abruzzo wrote that non-compete provisions “interfere with, restrain, or coerce employees” in the exercise of their right to “self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
Taken together, these developments make it clear that the federal government — without issuing an outright ban against non-compete agreements — is committed to using virtually every argument at its disposal to weaken them and discourage their use by employers.
Most notable is the willingness of these multiple agencies to work in concert, using the laws and programs within their purview to develop complex, coordinated cases against the legality of non-compete provisions, whether through claims that such terms violate antitrust law or that they run afoul of employees’ rights to organize and join a union.
Health care employers, in particular, should take note of these developments, as their workforces tend to be more unionized that those in other industries. 2022 Bureau of Labor Statistics data indicates that 7.7% of health care and social assistance industry employees are represented by unions (compared to 6.8% of all private-sector employees). In certain health care occupations, an even higher number of employees are represented by unions; for example, 13.0% of health care practitioners and technical professionals, and 9.3% of support staff are members of unions.
Countering the agencies’ claims that non-compete provisions are oppressive and have a negative effect on employment markets, a number of employers suggest that the NLRB itself is acting in the extreme and pursuing overly broad regulatory and law-enforcement action. Employer advocates have pushed back, offering a counter argument that non-compete agreements have a minimal effect on collective bargaining efforts. Instead, they say, such terms protect legitimate business interests such as confidential or closely held business information and a company’s longstanding business relationships.
Employers also argue that non-compete and related agreements are in sync with management-rights clauses in collective-bargaining agreements. Such clauses allow employers with unionized workforces to use their best judgment in managing the company and — they claim — even if broadly written, do not impede unionization or collective-bargaining efforts.
Although Abruzzo noted, in her May 30 memo, that “not all non-compete agreements necessarily violate the NLRA,” she was somewhat vague in her description of contracts (or contract terms) that comply with the law and suggested the following few exceptions:
- Provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business
- True independent-contractor relationships
- Situations in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.
Currently, the content of the May 30 memo has not been enacted into law and, as such, represents NLRB guidance only. In any case, health care employers should be aware of the potential impacts of the new guidance and review their standard offer letters, handbooks, employment, severance, and related agreements, and other human-resources documents for potential risk.
Agreements containing confidentiality, non-disclosure, non-compete, non-disparagement, non-solicitation, no-poaching, and other clauses — as well as liability releases, covenants not to sue, and cooperation requirements — should be updated or written more narrowly to avoid potential exposure. In so doing, employers should engage experienced legal counsel to help identify and resolve any issues.
Employers should also be mindful of forthcoming NLRB guidance or potential lawsuits since, for the time being, the regulatory pendulum is swinging toward employees and organized labor.
Thomas Hubert and Joseph Lavigne are partners in the Labor & Employment Practice Group and lead trial attorneys for the trade secret non-compete team at Jones Walker LLP in New Orleans. They can be reached at email@example.com and firstname.lastname@example.org