Punching In: Labor Board’s New Test for Work Rules Takes Shape

Monday morning musings for workplace watchers.

NLRB’s Work Rules Test in Action|States Further Limit Noncompetes

Robert Iafolla: A recent National Labor Relations Board judge’s decision against an ExxonMobil Corp. subsidiary marked the 12th time in 13 cases that an agency jurist found that a company violated the board’s new legal test for work rules, a Bloomberg Law analysis found.

ExxonMobil Global Services Co.’s rule protecting corporate information was one of the 26 employer rules or policies that administrative law judges said ran afoul of the NLRB’s standard from its August 2023 decision in Stericycle, Inc.

Overall, ALJs have found fault with two-thirds of the rules that they’ve analyzed under the Stericycle framework. The board itself hasn’t yet applied that standard, instead remanding disputes over work rules back to agency judges.

This early batch of Stericycle decisions shines a light on how employers legally can regulate worker conduct via policies and directives, although considerably more certainty will come when the NLRB applies its framework to different types of workplace rules.

In the Stericycle decision, the Democratic NLRB majority ditched a more employer-friendly standard set during the Trump administration. The new framework calls on NLRB prosecutors to prove that the disputed rule could chill workers from exercising their rights under the National Labor Relations Act, while allowing employers to prove it’s necessary to advance legitimate interests that can’t be achieved by a narrower directive.

Showing that the rule is narrowly tailored can be difficult because it’s easy to argue that a rule’s text could have been more precisely written, said Lori Armstrong Halber, an attorney with Fox Rothschild LLP.

ALJs applying Stericycle so far have nixed solicitation policies, a nondisclosure requirement, a restriction on off-duty conduct, and a limitation on contact with the news media.

Starbucks Corp.—the subject of numerous unfair labor practice cases before the NLRB—has seen ALJs disapprove of three rules: a dictum on polite communication, an edict on how workers mark cups and call orders, and a policy on “peaceful” demonstrations.

ALJs have split on rules related to civil behavior at work.

Starbucks’ “how we communicate” policy and United Electrical Contractors Inc.'s rules forbidding disrespect towards supervisors and the use of obscene language were held unlawful, while American Bottling Co.’s employee conduct directive and General Motors LLC’s bar on abusive language passed muster.

The NLRB is likely to reject some of the rules that ALJs approved because the board majority won’t give enough weight to workplace culture and compliance with statutes other than the NLRA, said Steven Suflas, a lawyer with Holland & Hart LLP.

NLRB General Counsel Jennifer Abruzzo also wants to enhance the remedies for an unlawful rule by requiring companies to expunge past discipline connected to that measure.

The New York State Capitol Building in Albany, New York. State lawmakers are going to attempt again to limit noncompete agreements after last year’s veto, joining several other blue states vying to curb the pacts.

Photographer: Angus Mordant/Bloomberg via Getty Images

Chris Marr: Blue states are still chipping away at companies’ use of noncompete agreements that stop employees from working for competitors even as the Federal Trade Commission is expected to vote next month to finalize its nationwide regulation.

So far this year, Washington state (SB 5935) clarified a requirement that employers notify new hires about noncompetes no later than their “initial oral or written acceptance” of the job. The measure also expanded a ban on restricting low-income workers’ job flexibility to include contracts barring service provided to a former employer’s customers.

Maine (HP 951) is also poised to narrow the business reasons that make noncompetes permissible, having passed a bill that’s now heading to the governor. The legislation would allow these contracts only to protect trade secrets as defined by law, or for employees with an ownership interest in the company. Existing law also allows noncompetes to protect other confidential information and corporate goodwill, but bars them completely for low-income employees.

Proposals to restrict noncompetes also are pending in Connecticut, Illinois, and a handful of other states. And New York City councilmembers have proposed a trio of varying restrictions, including one to ban nearly all noncompetes (Int 0140-2024).

But in perhaps the most-watched state proposal this year, New York lawmakers haven’t forgotten their vow to revisit a potential noncompete ban that Gov. Kathy Hochul (D) vetoed in December.

The effort to ban or limit the restrictive employment contracts in New York will resume after lawmakers finish their state budget work in early April, said state Sen. Sean Ryan (D), who sponsored the 2023 bill. The timeline also could let lawmakers see the FTC’s final regulation before they release their 2024 state proposal, he added.

The state legislature approved Ryan’s proposal last year to ban employee noncompetes in virtually all cases, but Hochul called for narrowing the bill to let employers continue using noncompetes for higher-earners and vetoed it after she and state lawmakers failed to reach a compromise.

Employers traditionally have required employees to sign noncompetes to prevent them from taking trade secrets and other company intelligence to competitors, while also protecting their investment in employee training.

The contracts have drawn scrutiny amid reports of businesses requiring even low-wage and hourly employees—including fast-food workers—to sign them. An estimated one in five US workers is covered by a noncompete, according to a 2022 US Treasury Department report.

California, Minnesota, North Dakota, and Oklahoma ban virtually all noncompetes unless the employees own a stake in the business. At least 11 more states and Washington, D.C., have banned noncompetes for low- and middle-income employees below specific salary thresholds or for hourly workers.

The FTC also is set to finalize a nationwide regulation, likely in April, that’s almost certain to face legal challenges from the business community. The draft version of the rule released in January 2023 called for a ban on nearly all employee noncompetes, even voiding existing contracts.

Meanwhile, the National Labor Relations Board announced its first enforcement action last year alleging a company’s use of noncompetes violated federal labor law. The agency’s general counsel repeatedly has expressed her belief that the contracts are illegal, although the full board has yet to weigh in.

We’re punching out. Daily Labor Report subscribers, please check in for updates during the week, and feel free to reach out to us.