Roger Nomer/The Joplin Globe via AP
Glendry Lopez, of Carthage, Missouri, looks over paperwork related to a lawsuit filed by her former salon employer seeking to enforce a noncompete agreement, March 12, 2019. The National Labor Relations Board has said that such agreements could unlawfully restrict workers’ mobility.
A complaint from a regional office of the National Labor Relations Board alleges that a noncompete agreement in an employment contract is an unfair labor practice, meaning such contract provisions would be unlawful and unenforceable in court. The complaint, the first to make this allegation, builds on a theory posited by the NLRB’s general counsel earlier this year, and if it holds, would represent a major change in American labor law.
The complaint, which was issued on September 1 by the agency’s Region 9 office in Cincinnati, is derived from the testimony of three former employees with Juvly, an Ohio-based company that provides outpatient “aesthetic services” at clinics and spas around the country.
Two of the employees allege that Juvly asked them to pay between $50,000 and $60,000 for the cost of training during employment, because they violated the noncompete agreement by getting hired as nurse practitioners at other companies. This type of demand, which was also part of the employment contract, is sometimes known as a “training repayment agreement provision” (TRAP). The NLRB complaint states that the noncompete and the TRAP violate the National Labor Relations Act’s prohibitions on “interfering with, restraining, and coercing employees in the exercise of their rights.”
Law360 was the first outlet to report the news.
The NLRB’s action adds another dimension to the Biden administration’s assault on noncompetes. The Federal Trade Commission (FTC) proposed a ban on most noncompete agreements earlier this year.
In May, NLRB General Counsel Jennifer Abruzzo, in a memo to regional directors, stated her view that noncompete provisions violate the NLRA, and sought complaints along those lines. Noncompetes “could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for,” Abruzzo wrote.
The clauses lock workers out from threatening to resign over working conditions, because they cannot act upon those threats by switching jobs within their fields, Abruzzo explained in the memo. They also chill labor organizing, since the threat of walking out is somewhat extinguished. “They effectively limit employees from the kind of mobility required to be able to engage in some particular forms of [NLRA-protected] activity,” Abruzzo wrote. She added that certain noncompetes could be lawful if they restrict employees from owning or managing a competing business, or if they involved a true independent-contractor relationship.
Now, the NLRB undertook its first enforcement action against a noncompete before Abruzzo’s memo, involving a cannabis company in Michigan, but it ended in a private settlement and the case was subsequently withdrawn. The new complaint, which has not been settled to date, is scheduled to come before an administrative law judge in November. That means it could go to the full Board and become a binding precedent.
The National Labor Relations Act (NLRA) does not apply to supervisors or managers. But if the Board approves this interpretation, millions of nonsupervisory employees would be freed from restrictive clauses that prevent them from moving or threatening to move to different employers in the same field to improve their wages or working conditions. Or at least, they would be freed until business strikes back by trying to overturn the NLRB’s rule in the courts.
THE WORKERS, WHOSE NAMES HAVE BEEN REDACTED in the complaint, were nurse practitioners at Juvly, whose services include cool sculpting, laser hair removal, collagen and Botox injections, and more. The Prospect obtained the names of the employees, but they did not respond to requests for comment, and to maintain their privacy we will not include them here. The complaint itself was obtained through a Freedom of Information Act request.
As a condition of employment, the Juvly workers signed an extensive agreement, which the NLRB quotes from at length in its complaint. This includes a clause stating that “not performing tasks requested by your supervisor is considered insubordination” and could be met with termination. In addition, the contract states, “it is a violation of Company policy to disclose any information of a confidential nature to anyone outside of the Company.” Such information includes “costs, sales figures, customer lists, advertising, treatment methods, reconstitutions instructions, off-label product uses, injection techniques, expectation management, training process or techniques, resources, recordings or any materials obtained via employment at the Company.”
The NLRB’s action adds another dimension to the Biden administration’s assault on noncompetes. The FTC proposed a ban on most noncompete agreements earlier this year.
After employment ends, workers commit in the contract to not disparage Juvly in any manner, to maintain confidentiality, and to not practice aesthetic medicine and a host of associated services at any competing company within a 20-mile radius of a Juvly location for two years. If the noncompete agreement is violated, Juvly states that it will seek from the employee the full cost of training, which they put at $75,000 for initial training and $30,000 per year of employment for continuing education for “master providers,” or $30,000 for initial training and $15,000 per year for “master aestheticians.”
In addition, the company has a non-solicitation agreement, whereby former employees cannot solicit a client or employee to leave Juvly. The contract sets damages at $25,000 per client and $150,000 per employee.
All of these points are reinforced in an exit agreement, which employees are instructed to sign when they leave Juvly. They were also reinforced verbally by a Juvly manager on several occasions, including one statement from June of last year where employees were instructed “not to discuss anything with their coworkers.”
Each employee’s case is slightly different. One alleges that they were fired after complaining about being asked to perform microneedling services that were disallowed by Ohio rules and regulations. This was deemed by Juvly in violation of the insubordination policy from the employment contract, according to the complaint.
A second employee alleges that they were not paid out their accrued paid time off after leaving the company, because they refused to sign the exit agreement. That employee and a third employee allege that Juvly asked them for repayment of training costs because they were hired at other aesthetic service providers.
The NLRB complaint deems all of the employment contract clauses that triggered these actions by Juvly as unfair labor practices. The complaint seeks to have those clauses rescinded from Juvly’s contracts, to cancel the request for training costs, and to make the employees whole for any damages, including the returning of accrued paid time off, with interest.
Juvly has until this Friday to answer the complaint; so far, it has not done so. The administrative law judge hearing in the case is scheduled for November 28 of this year.
A request for comment to Juvly was not returned.
Russell Beck, a business attorney who specializes in noncompete agreements, said that the NLRB bringing a case on noncompetes was inevitable after General Counsel Abruzzo’s memo. He thought that, because noncompetes have traditionally been regulated at the state level, the NLRB getting involved “seems like an overstep of the general counsel’s interpretation,” though he acknowledged abuses of noncompete clauses in some instances. The training repayment agreements in particular had the potential to lock employees in their jobs, Beck said: “If I were making the rules I would look at them critically.”
Beck’s point that the states also regulate noncompetes will surely be part of any litigation against the NLRB, should their invocation of them as an unfair labor practice rise to a Board decision. But between Abruzzo and the FTC’s Lina Khan, these agreements have a lot of powerful enemies.
