The aesthetics spa charged by the General Counsel of the National Labor Relations Board (NLRB) with engaging in unfair labor practices for using restrictive covenants is seeking to have the case dismissed.
Quick background:
Recall that on May 30, 2023, the NLRB General Counsel issued a memo asserting her view that noncompetes (and certain other restrictive covenants) are an unfair labor practice under the National Labor Relations Act (NLRA).
Next, on September 1, the NLRB (Region 9, which is in Cincinnati) issued an Order Consolidating Cases, Consolidated Complaint and Notice of Hearing (the “Complaint”) against Harper Holdings, LLC d/b/a Juvly Aesthetics (a spa providing cosmetic services) charging that Juvly’s use of noncompetes, no-recruits, no-hire covenants, training repayment agreements, and other obligations constitute an unfair labor practice in violation of the NLRA.
As discussed in detail here, the Complaint identified various (presumably problematic) provisions contained in an offer letter, in Juvly’s rules, in Juvly’s Code of Conduct, in Juvly’s exit interview process, and, of course, in in Juvly’s restrictive covenant agreement. It even claimed that certain statements made by representatives of the company were unfair labor practices.
In response, Juvly initially filed an answer on the September 15 deadline. (The Answer it is not publicly available, although a redacted version can be requested under FOIA.) On October 27, the GC issued an RD Order, which is also not publicly available.
Onto Juvly’s motion to dismiss…
Juvly’s Motion to Dimiss
On October 27, Juvly filed a motion to dismiss.
In the motion, Juvly argues primarily as follows:
- “[T]here is no precedent under the National Labor Relations Act that supports that the mere maintenance of a non-compete agreement violates the Act.”
- Under Stericycle, Inc., 372 NLRB No. 113 (2023), “[t]here is no basis to support that the non-compete agreements would have a reasonable tendency to chill employees’ Section 7 rights . . . . Non-compete agreements are specifically designed to address issues outside the purview of the National Labor Relations Act.”
- In Abell Eng’g & Mfg., 338 NLRB 434, 434-5 (2002), the NLRB “recognized that the solicitation of employees to work for another employer is not a protected Section 7 right.”
- “[E]ven if the General Counsel could establish its burden, . . . an employer has a legitimate and substantial business interest (recognized by state law) in a non-compete agreement.”
- The General Counsel’s proposed remedy, which would simply strike the restrictive covenants, “is directly contrary to decades of Ohio legal jurisprudence,” which permits reformation of noncompetes.
Next Steps
Now we wait. Presumably the NLRB’s GC will file an opposition, after which Juvly will (I believe) have seven days to respond. We will be on the lookout for both.
The hearing appears to remain scheduled for November 28, 2023, 10 a.m. at Room 3-111 in the John Weld Peck Federal Building, 550 Main Street, Cincinnati, Ohio.
We will keep you posted.
Takeaways
While we cannot assume that the NLRB will accept the GC’s position, it appears more likely than not that it will.
Given the NLRB GC’s pursuit of this claim, the FTC’s pending Notice of Proposed Rulemaking, Minnesota’s recent noncompete ban, and the two new California laws, companies should be thinking hard about what steps they need to take to protect their confidential information (including trade secrets), and other legitimate business interests. There are many options we’ve identified before and will be discussing again soon, along with additional ideas, including for example, ERISA “Top Hat Plans” with forfeiture-for-competition provisions.
Stay tuned.
In the meantime . . .
We’ve created the following resources (available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
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[1] “RD” refers to a decertification petition, which “employees may file . . . if they believe support for a union has diminished, after collecting signatures from at least 30% of workers in a unit.”