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What NJ Healthcare Employers Need to Know about Non-Compete Provisions

Currently, 11 states already ban or restrict non-compete employment arrangements. In New Jersey, pending legislation (A.B. 3715) could impose significant restrictions on the scope and enforceability of restrictive covenants in employment contracts in the state.  If A.B. 3715 becomes law, New Jersey would be among the most challenging states for employers seeking to restrict employee activities post-employment.

Recently, the NLRB’s general counsel (GC) issued guidance on non-compete provisions in employment contracts that generally block employees from working for competitors or starting competing businesses post-employment, within a certain geographic range and time period. The GC looked unfavorably upon these provisions, stating non-competes were harmful to employees, especially non-supervisory, low-wage, and middle-wage workers. (Memo Number GC 23-08 Non-Compete Agreements that Violate the National Labor Relations Act)

Analyzing the NLRB’s Opinion for NJ Healthcare Employers

While employers may be tempted to ignore the GC’s opinions, we suggest that they pay attention. The GC is appointed by the president of the United States, with the consent of the Senate, to carry out the functions and responsibilities of the National Labor Relations Act (NLRA), passed by Congress in 1935. The NLRA protects workplace democracy by providing private sector workers “the fundamental right to seek better working conditions and designation of representation without fear of employer retaliation” and penalizes employers who violate these rights. As such, when the GC issues an opinion on how the NLRB would handle certain employment matters, employers should pay heed.

The GC’s memo to all regional directors, officers-in-charge, and resident officers addressed how the NLRB would handle future complaints regarding non-compete provisions in employment contracts. The memo condemned non-compete agreements as interfering with employees’ rights “to engage in […] concerted activities for the purpose of collective bargaining or other mutual aid or protection,” therefore violating Sections 7 and 8 of the NLRA. The GC supported her general disdain for non-competes, noting they chill:

  1. “…employees from concertedly threatening to resign to demand better working conditions.” These threats are futile since employers could sue them if they moved to competing employers or started competing businesses within stipulated geographic regions.
  2. “…employees from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.”
  3. “…employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.”
  4. “…employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity.”
  5. “…employees from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace. In this regard, they effectively limit employees from the kind of mobility required to be able to engage in some particular forms of this activity, such as union organizing, which may involve obtaining work with multiple employers in a specific trade and geographic region.”

The GC concluded, unless non-compete provisions are “narrowly tailored to special circumstances justifying the infringement on employee rights,” “the proffer, maintenance and enforcement of a non-compete … reasonably tends to chill employees from engaging in Section 7 activity” in violation of the NLRA.

It seems that the GC is simply joining the growing national wave of non-compete dissenters. On January 5, 2023, the FTC released a Notice of Proposed Rulemaking to prohibit employers from using non-compete clauses in employment contracts, condemning them as generally unfair methods of competition. The proposal banned any language in an employment contract “that prevents the worker [paid or unpaid] from seeking or accepting employment with a person, or operating a business, after the conclusion of the worker’s employment with the employer.” The FTC’s proposal would require employers to rescind existing non-compete clauses and notify workers that they are no longer in effect.

Given the current movements in this area of law, we encourage New Jersey employers to review current and planned contract arrangements that involve non-compete clauses.

For additional information about employment agreements, please contact us here.

  • Posted on: Jul 13 2023