NLRB General Counsel Argues Unenforceability of Non-Competes
June 8, 2023
We previously notified you in early January that the Federal Trade Commission (FTC) proposed a sweeping rule to ban nearly all non-compete agreements between employers and workers as “an unfair method of competition” prohibited by Section 5 of the FTC Act. Late last week, the General Counsel for the National Labor Relations Board (NLRB) chimed in, issuing a memo asserting broad non-compete agreements also violate Section 7 rights under the National Labor Relations Act (NLRA), with few exceptions.
The NLRB General Counsel’s memo states an employer’s offer, maintenance, and enforcement of non-compete agreements violates the NLRA by inhibiting employees from engaging in five specific types of activity protected under Section 7:
threatening to resign to secure better working conditions;
carrying out threats to resign or otherwise resigning to secure improved working conditions;
seeking or accepting employment with a local competitor to obtain better working conditions;
soliciting co-workers to go to work for a local competitor as a broader course of protected concerted activity; and
working at another company to organize from within to promote unionization there.
The memo instead encourages employers to protect their proprietary or trade secret information with customized confidentiality agreements, rather than sweeping non-compete provisions.
This update applies only to private employees who are not supervisors or managers. It does not apply to public sector employees, independent contractors, or private employees that are supervisors or managerial, as they do not have Section 7 rights.
The memo acknowledges that noncompete agreements could be lawful if:
they clearly restrict only employees’ managerial or ownership interests in a competing business; or
they are “narrowly tailored to special circumstances justifying the infringement on employee rights." The memo, however, rejects the commonly asserted business interests of “retaining employees or protecting special investments in training employees” as “unlikely to ever justify an overbroad non-compete provision."
Why Is This Memo Significant?
The General Counsel’s memo signals that her office is seeking to prosecute cases involving potentially unlawful non-competes before the NLRB, with the goal of obtaining a decision from the Board reinforcing her view on non-compete agreements. Even if the Board were to adopt the General Counsel’s position, such decision would most certainly be appealed to the appropriate U.S. Court of Appeals, and ultimately to the U.S. Supreme Court, and could be overturned at any point in that process. For a review of the current landscape for enforceability of non-competes, see our January 10, 2023 blog “Proposed FTC Rule Would Make Non-Competes a No-Go.”
What Should Employers Do Now?
Employers should be aware that non-compete agreements will now be subject to scrutiny by the NLRB. As such, employers should carefully examine their current reliance on non-compete agreements and consider a tentative plan for implementing less sweeping covenants, such as non-disclosure agreements, non-solicitation agreements, and more stringent confidentiality agreements for those employees possessing highly sensitive trade secret information. In many cases, these narrower restrictions can achieve many of the same objectives as a non-compete while remaining enforceable in the event the General Counsel’s view, or that of the FTC, are confirmed by the Board or the courts.
What Should Employees Do Now?
Any private sector employee who is currently subject to, or may be asked to enter, a broad non-compete agreement, whether stand-alone or as part of an employment or severance agreement, should be aware that such non-compete agreements are now subject to scrutiny by the NLRB. Under Va. Code § 40.1-28.7:8, Virginia employers are already prohibited from entering into, enforcing, or threatening to enforce a covenant not to compete with any “low-wage employee” (one making less than $1,343 per week, or $69,836 annually). As the legal environment becomes less friendly towards broad non-competes, employers may replace their current non-compete agreements with less sweeping covenants, such as non-disclosure agreements, non-solicitation agreements, and more stringent confidentiality agreements for those employees possessing highly sensitive trade secret information. Such narrower restrictions would benefit employees by allowing more freedom of movement between jobs and more opportunity for launching competitive businesses.
At Yeng Collins, we remain available to provide guidance regarding this ever-changing area of law.
PUMP Act Increases Employers’ Obligations to Nursing Employees
April 27, 2023
Beginning April 28, 2023, the Providing Urgent Maternal Protections (PUMP) for Nursing Mothers Act provides nursing mothers with a new private right of action.
Q: Which employers are subject to the PUMP Act?
A: Employers of any size have obligations under the PUMP Act, importantly, including employers with less than five employees. Employers with five or more employees are already subject to the Virginia Human Rights Act (VHRA) requiring employers to provide reasonable accommodations for pregnancy, childbirth or related medical conditions, including lactation, unless the accommodation would impose an undue hardship. Examples of reasonable accommodations include breaks to express breast milk and access to a private location other than a bathroom for the expression of breast milk.
Employers with less than 50 employees are not subject to the Act if providing such accommodation would cause undue hardship, which is analyzed on a case-by-case basis as the need for accommodation arises.
Q: What obligations does an employer have, and what rights does an employee have, under the PUMP Act?
A: The PUMP Act requires employers to provide a reasonable break for an employee to express breast milk each time the employee has a need to do so for up to one year after a child's birth. Employers must provide the employee with a private location to express, other than a bathroom, that is shielded from view and free from intrusion. Employees must notify their employer if they have failed to provide adequate space to pump, and the employer then has 10 days to comply. Employers are also prohibited from firing an employee for requesting break time or space to pump.
The PUMP Act also amends the Fair Labor Standards Act (FLSA) to require employers to pay employees for lactation breaks if the employer provides paid breaks to other employees. Under the PUMP Act, even where employers do not provide paid breaks, time spent expressing must be considered hours worked unless the employee is completely relieved of duties during the entire break. If the employee is interrupted during the break, they must be paid for the entire break. Although these protections were already in place for nonexempt (hourly) employees under the Break Time for Nursing Mothers Act, passed in 2010 as part of the Affordable Care Act (ACA), the PUMP Act amends and expands that legislation to provide such protections to overtime-exempt (salaried) employees and adds additional enforcement mechanisms.
Q: What remedies does an employee have for a violation of the PUMP Act?
A: As of April 28, 2023, employees who are denied breaks, not provided a suitable space for expressing, not paid for the break as required by the Act, or fired for requesting break time or space to pump may bring a private right of action in federal court against their employers for back pay, front pay, liquidated damages, attorneys' fees and costs. Virginia law also provides employees who believe their pregnancy accommodation rights have been violated with a private right of action in state court.
In light of these developments, now is a good time to revisit your employee policies with respect to pregnancy and lactation breaks. If you find you need guidance regarding your workplace policies or other employment law matters, Yeng Collins Law is here to assist.
NLRB General Counsel Issues Guidance on
Non-disparagement and Confidentiality Provisions
March 30, 2023
We previously alerted you to the National Labor Relations Board (NLRB)’s recent decision in McLaren Macomb, holding that severance agreements containing overly broad non-disclosure or non-disparagement clauses are unlawful because they restrict workers’ rights under the National Labor Relations Act (NLRA). The McLaren decision raised more questions than answers, however, and employers (and the attorneys who advise them) have been awaiting further guidance from the NLRB. NLRB General Counsel recently released a memo providing additional clarification on the scope and impact of the February 21 McLaren decision.
Here are the main takeaways:
Severance agreements may still be lawful. Carefully crafted severance agreements may continue to be “proffered, maintained, and enforced” as long as they do not contain “overly broad provisions that affect the rights of employees to engage with one another to improve their lot as employees.” Notably, the Board held that employers have “no legitimate interest” in maintaining unlawful provisions in severance agreements and that in finding whether there has been an NLRA violation, whether or not an employee actually signed a severance agreement is “irrelevant” as “the proffer itself inherently coerces employees by conditioning severance benefits on the waiver of statutory rights.”
Limited non-disclosure clauses may still be lawful. Confidentiality (non-disclosure) clauses that are “narrowly tailored to restrict the dissemination of proprietary or trade secret information for a period of time based on legitimate business justifications” are lawful. Additionally, clauses that prohibit disclosure of the financial terms of a severance agreement are still lawful. However, a clause that has “a chilling effect that precludes employees from assisting others” or communicating with the media, a union, or other third parties would be unlawful.
Limited non-disparagement clauses may still be lawful. Non-disparagement provisions are still allowed provided they are “limited to employee statements about the employer that meet the definition of defamation as being maliciously untrue, such that they are made with knowledge of their falsity or with reckless disregard for their truth or falsity.”
The McLaren decision applies retroactively. McLaren applies to agreements signed before the February 21 decision, meaning that claims regarding overly broad non-disclosure or non-disparagement clauses in existing severance agreements would not be time-barred as long as an employer maintains or enforces such terms. Employers who attempt to continue to enforce such unlawful severance clauses would be committing a contemporary violation.
Agreements will not be voided in their entirety because they include unlawful provisions. The Board will generally seek to void only those provisions determined to be unlawful, rather than voiding the entire agreement, even in situations where the agreement does not include a severability clause.
Overly broad non-disclosure and non-disparagement provisions are unlawful even if requested by the employee.
Disclaimer language is not necessarily a cure-all.
Still unresolved is the question whether McLaren applies to other types of agreements, such as settlement agreements (though many legal experts believe it likely does apply to such agreements).
Finally, while this guidance memo is helpful in understanding the NLRB’s enforcement intentions, it is important to keep in mind that McLaren is subject to appeal, thus there is likely to be further direction from the courts on these issues that may conflict with the General Counsel’s guidance. In the meantime, employers should review the terms of their severance agreements in light of this new guidance.
Yeng Collins Law will continue to monitor these developments and will provide updates as additional information becomes available. We remain available to assist you in navigating this uncertain legal terrain.
NLRB Decision Upends the Legality of Severance Agreements Containing Confidentiality and Non-disparagement Provisions
February 26, 2023
Last week, the National Labor Relations Board (NLRB) issued a tide-turning decision in McClaren Macomb finding that severance agreements are unlawful if they broadly restrict an employee’s right to discuss the agreement (confidentiality) or speak negatively about their former employer (non-disparagement). Specifically, the NLRB held that a severance agreement containing broadly-drafted confidentiality and/or non-disparagement provisions is unlawful because such terms tend to interfere with workers’ organizing rights under Section 7 of the National Labor Relations Act (NLRA). The McClaren decision applies to both unionized and non-union private workplaces.
It is important to note that this decision does not affect workers who do not have Section 7 rights, including independent contractors, managers, most supervisors, and public sector employees, among others.
In light of this sweeping decision, private employers who utilize standard severance agreements containing confidentiality and/or non-disparagement provisions need to closely examine the language of those provisions. Here are a few things for employers to keep in mind:
Even if you haven’t sought to enforce a confidentiality or non-disparagement provision in a severance agreement, the agreement may still violate Section 7. McClaren held that merely “proffering” a severance agreement containing such overly-restrictive provisions constitutes an unlawful labor practice, because the act of conditioning receipt of benefits on the acceptance of what it considered to be unlawful terms waiving organizing rights was deemed coercive in and of itself.
It is possible, but not definite, that a severance agreement containing confidentiality and non-disparagement provisions could still be legal if those provisions are sufficiently narrowed and/or contain a disclaimer preserving the employee’s Section 7 rights. The confidentiality and non-disparagement provisions in the McClaren case were drafted broadly, and neither were accompanied by a disclaimer stating these provisions do not prevent the employee from enforcing their Section 7 rights. While the decision did not directly state that such a disclaimer could have saved these provisions, it does leave the door cracked to the possibility that such a disclaimer, if carefully drafted, might allow the inclusion of non-disparagement and confidentiality provisions. The question is, would such disclaimers need to be so broad that they would essentially render the confidentiality and non-disparagement provisions practically unenforceable. Similarly, any narrowing of such provisions would likely need to be so limiting as to obviate the employer’s purpose for including them – for instance, the McClaren decision found that a confidentiality clause prohibiting disclosure to any third party, which would include the employee’s labor union and former co-workers was unlawfully restrictive.
Existing severance agreements containing confidentiality and non-disparagement provisions, while not specifically excluded from the McClaren decision’s coverage, are unlikely to be invalidated by it. Mainly, this is because the NLRB’s procedural rules effectively bar workers from bringing charges unless they relate back to a violation occurring within the past six months. Additionally, it is reasonable to assume that if a severance agreement took effect at a time when confidentiality and non-disparagement provisions were allowed, the employer would have a valid defense to any complaint seeking retroactive application of the new restriction on such provisions.
Given all of the above, and in the absence of further guidance from the NLRB’s General Counsel (which we expect to follow in the coming months), there is no definite answer to the dilemma the McClaren decision raises for employers. As to a severance agreement presented to any employees who have Section 7 rights, employers may take a number of approaches:
Risk-averse employers who do not want to take any chances with a possible NLRA violation may decide to immediately stop including confidentiality and non-disparagement provisions in their severance agreements.
Others may decide to keep such provisions in but narrow them as much as possible and add strong disclaimer language.
Still others may decide to keep their broad confidentiality and non-disparagement provisions as-is, at least until further guidance is issued, given the deterrent value of such provisions and the unlikelihood of the employee to bring a complaint that could disgorge their severance benefits.
Yeng Collins Law will continue to monitor the impact of the McLaren decision as it unfolds and as further guidance is issued and will provide updates as needed. In the meantime, if you have questions, we are available to provide advice that will best position you on this still-uneven ground.
Untold Tales: Q4 2022 Legal Developments We Did NOT Blog About
January 24, 2023
As we wade into 2023 (hard to believe January is almost over!), we’d like to take note of a few legal developments that occurred in the fourth quarter of last year that we haven’t yet shared with you:
The Fourth Circuit Held that Gender Dysphoria Is Covered by the ADA
Employers in Virginia should know that they will not only be navigating Title VII when dealing with transgender employees, but also potentially requests for accommodation under the Americans with Disabilities Act (ADA), based on the Fourth Circuit’s decision in Williams v. Kincaid. Although the case was decided in August 2022, it was cemented as Fourth Circuit law when a full panel rehearing was denied in October.
The Williams case holds that transgender people who experience gender dysphoria that results in physical distress or requires the use of a physical treatment are protected under the ADA.
New Proposed DOL Independent Contractor Test
On October 13, 2022, the Department of Labor issued a proposed new rule establishing the test for when employers may properly classify workers as independent contractors rather than employees. The proposed rule, which is very similar to the Obama-era test, focuses on the “economic realities of the workers’ relationship with the employer,” and frames a worker’s economic dependence on their employer as the “ultimate inquiry” for the test. If it takes effect, the new rule would entirely replace the current rule, which was issued in the last days of the Trump administration.
Independent contractors are paid on an hourly or per-project basis and are not entitled to healthcare benefits, retirement benefits or most labor protections. However, the rise of the gig economy has created a class of worker that effectively works full time for a company but is still considered an independent contractor. The proposed rule would likely change that, providing these workers with benefits and labor protections under federal law.
Speak Out Act
The Speak Out Act, signed into law by President Biden on Dec. 7, 2022, makes pre-dispute nondisclosure and non-disparagement clauses in employment contracts or severance agreements unenforceable with respect to claims or allegations of sexual assault and sexual harassment.
In practical terms, this means that prospective non-disclose agreements between employees and employers that include restrictions on disclosing sexual misconduct are no longer enforceable. Similarly, prospective non-disparagement clauses prohibiting employees from speaking negatively about the employer or other employees are unenforceable. Such clauses would also be unenforceable in severance agreements, provided the separation was not prompted by allegations of sexual assault or harassment.
Employers wishing to include non-disclosure and non-disparagement clauses in their employment agreements may still do so with respect to other topics, provided they carve out sexual assault and sexual misconduct.
Because it only applies to pre-dispute clauses, the Speak Out Act does not prohibit employers who are settling claims alleging sexual assault or sexual harassment from negotiating for and enforcing non-disclosure and non-disparagement clauses in the applicable settlement agreements. Indeed, these clauses are often critical in getting such disputes resolved.
Proposed FTC Rule Would Make Non-Competes a No-Go
January 10, 2023
On January 5, 2023, the Federal Trade Commission (FTC) proposed a sweeping rule that would:
ban employers and workers from entering future non-compete agreements (except in limited circumstances in connection with the sale of business); and
invalidate existing non-compete agreements between employers and their current and former workers.
If the rule takes effect, it would deem non-competes between employers and workers “an unfair method of competition” prohibited by Section 5 of the FTC Act.
In support of the proposed rule, the FTC argues that noncompete clauses “hinder innovation and business dynamism in multiple ways – from preventing would-be entrepreneurs from forming competing businesses, to inhibiting workers from bringing innovative ideas to new companies.” But the U.S. Chamber of Commerce calls the proposed rule a “blatantly unlawful” restriction on the right of employers and employees to contract freely.
As of July 1, 2020, Virginia law bars employers from entering and enforcing non-competes with “low-wage employees” (currently, those making less than $67, 080 annually). However, the use of non-compete agreements by Virginia employers continues to be commonplace for higher-paid workers, including independent contractors. The FTC proposed rule would upend this status quo, preventing employers from entering into non-compete clauses with workers at all pay levels. Additionally, unlike the Virginia prohibition on non-competes for low wage earners, which grandfathers all agreements made before July 1, 2020, the FTC rule would require employers to rescind all existing non-compete agreements with workers. Furthermore, because the rule applies to “workers” and not just “employees,” it is written to include independent contractors.
Once the FTC publishes the proposed rule in the Federal Register, it will allow a 60-day public comment period. It can then finalize the rule based on input received. As currently drafted, once finalized and published, the rule would require employers to comply within 180 days. However, enforcement of any final rule could be delayed or prevented entirely by legal challenges.
For now, employers should carefully examine their current reliance on non-compete agreements and consider a tentative plan for implementing less restrictive covenants, such as non-disclosure agreements and non-solicitation agreements, that would achieve many of the same objectives as a non-compete while remaining enforceable in the event the rule, or a modified but similar version thereof, takes effect. On the other hand, employees whose ability to move jobs within their industry in the next few years is curtailed by a non-compete agreement should monitor the progress of this proposed rule closely and may wish to seek legal counsel now regarding the current limits and enforceability of their agreement.
Virginia Overtime Wage Act Creates Substantial Exposure for Employers and Greater Availability of Damages for Employees
June 21, 2021
The new Virginia Overtime Wage Act (VOWA) will go into effect July 1, 2021, and similar to the federal Fair Labor Standards Act (FLSA), the VOWA requires employers to pay nonexempt workers overtime at a rate of one-and-a-half times their regular rate of pay for any hours worked over 40 hours in a single workweek.
The VOWA is more favorable to employees than the FLSA in three notable respects:
(1) The VOWA has a 3 year statute of limitations, whereas the FLSA has a 2 year statute of limitations, with a 3 year statute of limitations only available if the employee can prove the violation was willful.
(2) The VOWA provides for greater remedies than the FLSA. The VOWA makes liquidated damages automatic, whereas the FLSA provides employers with a good faith defense against liquidated damages. Additionally, the VOWA allows for treble damages for "knowingly" failing to comply, however, those damages are not available under the FLSA.
(3) As to nonexempt salaried workers, the VOWA calculates the worker's regular rate of pay as one-fortieth of all wages paid for a particular week (regardless of the number of hours worked) and requires time-and-a-half overtime pay, whereas the FLSA calculates the worker's regular rate of pay by dividing the salary by the total number of hours worked and allows overtime pay as half-time only.
Fluctuating workweeks likely do not comply with the VOWA, and any piece rate and day rate arrangements should be reevaluated to ensure compliance with the VOWA. There are exemption defenses available to employers for employees that are executive, administrative, professional or outside sales, among others. The VOWA also expressly authorizes collective actions.
CDC Updates Recommended Isolation and Quarantine Guidance
January 5, 2022
On January 4, 2022, the CDC updated it's recommended isolation and quarantine guidance.
If your employee has been in close contact with someone who has tested positive for COVID-19:
OPTION 1: If the employee is fully vaccinated, he/she does not need to quarantine. The employee should still:
(1) wear a mask around others for 10 days from the date of his/her last close contact, and
(2) get tested at least 5 days after the last close contact. If the test is positive, or if he/she develops COVID-19 symptoms, the employee should isolate for 5 days, then wear a mask around others for an additional 5 days. If the test is negative, the employee can return to work but should wear a mask around others until 10 days from the date of the last close contact.
OPTION 2: If the employee (a) had confirmed COVID-19 within the last 90 days, (b) has recovered, and (c) is not experiencing any COVID-19 symptoms, the employee does not need to quarantine or get tested after the close contact. The employee should wear a mask around others for 10 days from the date of the last close contact.
OPTION 3: If the employee is not vaccinated or is not fully vaccinated, he/she should:
(1) quarantine for at least 5 days from the last close contact, and
(2) get tested:
(i) at least 5 days after the last contact, if there are no symptoms. If the employee tests negative, he/she can return to work but should wear a mask around others until 10 days after the last close contact. If the employee tests positive, he/she should isolate for 5 days from the positive test result, then wear a mask around others for an additional 5 days; or
(ii) immediately if symptoms develop. The employee should isolate for at least 5 days from the date the symptoms began, then wear a mask around others for an additional 5 days.
If the employee does not want to be tested or cannot locate a test, he/she should quarantine for 5 days from the last close contact and, if no symptoms develop, can return to work but should wear a mask for 10 days after the last close contact.
Paycheck Protection Program Extension Act of 2021 Extends the Program until May 31, 2021
April 6, 2021
Businesses can now apply for a PPP loan until May 31, 2021, with an additional thirty (30) days provided for the Small Business Administration to process applications that are still pending.
Extended COVID-19 Related Leave Provisions Provided For Under the American Rescue Plan Act of 2021
March 16, 2021
On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 (the Plan), which expanded the availability of paid leave previously provided through the Families First Coronavirus Relief Act (FFCRA). The Plan allows an employer to voluntarily provide Emergency Sick Leave (ESL) and Emergency Family and Medical Leave Act Leave (EFMLA), and to claim the related tax credit for the wages associated with the use of that leave, between April 1, 2021 through September 30, 2021.
The FFCRA provided for paid leave for these qualifying reasons:
to comply with a federal, state, or local quarantine or isolation order related to COVID-19;
to self-quarantine if advised to do so by a healthcare provider;
to obtain a medical diagnosis if experiencing COVID-19 symptoms;
to care for an individual required to be quarantined if that individual is subject to a quarantine or isolation order or has been advised by a medical provider to self-quarantine; or
to care for your child if the child's school or child care center is closed due to COVID-19.
The Plan now allows the 10 days of paid leave under the ESL and the 12 weeks of paid leave under the EFMLA to also be used for these additional qualifying reasons:
obtaining a COVID-19 vaccine;
recovering from an injury, disability, illness or condition related to a COVID-19 vaccination; or
seeking or awaiting results of a COVID-19 test or diagnosis either because the employee has been exposed or the employer requested the test or diagnosis.
Beginning April 1, 2021, employees have access to a new bank of 10 days of ESL and are therefore eligible for this leave even if they have previously taken 10 days of paid leave under the ESL.
The first two weeks of the EFMLA no longer need to be unpaid.
U.S. Department of Labor Delays Effective Date of New Tip Pool and Tip Credit Regulations
March 1, 2021
On February 24, 2021, the U.S. DOL announced it would delay until April 30th the implementation of the tip pool and tip credit regulations that were set to go into effect on March 1st. The new regulations would allow non-tipped employees to be paid as little as $2.13/hr and be included in a tip pool to receive tips that would compensate them up to the higher minimum wage. These regulations would also remove limits on how many hours of non-tipped work a tipped employee can perform while being paid at a rate of $2.13/hr. Finally, the regulations include new recordkeeping and notice requirements for employers. It is anticipated that these regulations will assist employers in the service industry struggling during the COVID-19 pandemic.
Robust Avenue to Recover Unpaid Wages Under the Virginia Wage Payment Act
March 1, 2021
Employees in Virginia can now file suit in state court to recover unpaid wages, bonuses and commissions. If successful, the employee could recover not only the unpaid wages, but also liquidated damages (up to three times the amount of unpaid wages for knowing violations), prejudgment interest, and reasonable attorneys' fees and costs. An employer acts knowingly if it has actual knowledge, deliberately ignores the truth or recklessly disregards the truth.