NLRB settles with Juvly Aesthetics for use of noncompetes

While all eyes have been fixed on the FTC’s rule to ban noncompetes, the NLRB quietly settled the unfair labor practice case it brought against Harper Holdings, LLC d/b/a Juvly Aesthetics (a spa providing cosmetic services) for using noncompetes and other allegedly unlawful agreements.

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).

Also recall that on September 1, 2023, the NLRB (Region 9, which is in Cincinnati) issued an Order Consolidating Cases, Consolidated Complaint and Notice of Hearing (the “Complaint”) charging that Juvly’s use of various agreements and policies constituted 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.

Settlement

On January 29, 2024, the NLRB finalized a settlement agreement between Harper Holdings, LLC d/b/a/ Juvly Aesthetics (Employer) and three of its former employees that resolved pending unfair labor practice charges.

In its February 1 announcement of the settlement, the NLRB explained that its complaint against Juvly “alleged numerous violations, including maintaining unlawful confidentiality, non-disparagement, non-compete, no-solicitation, and training repayment provisions.”

According to the NLRB, Juvly “policies had required employees leaving their employment within the first twelve months of employment to pay up to $75,000 in costs for training and prohibited employees from practicing aesthetic services within a twenty-mile radius for 24 months after termination of their employment.” The NLRB’s also claimed that Juvly “told employees not to discuss their terms and conditions of employment, including individual employment contracts, bonuses, and evaluations; unlawfully enforced its non-disparagement and training repayment provisions; and unlawfully discharged and withheld benefits from employees.”

As you may recall, these allegations were quite expansive and targeted not just agreements and written policies, but verbal statements.

Importantly, the allegations in the case are instructive for how the NLRB might view similar agreements, policies, and statements — some of which may seem benign — of other companies.

As summarized by the NLRB, in the settlement, Juvly “agreed to rescind the unlawful policies, cease its demands for training repayments, to pay more than $25,000 in monetary relief to two employees affected by the Employer’s unlawful discharge and withholding of benefits, post a remedial Notice to Employees across all of its facilities in the United States, and post a copy of the Notice to its Slack messaging application.”

Takeaways: Steps to Take Now

Given the NLRB’s pursuit and settlement of this claim, the FTC’s pending noncompete ban, the two new California laws, and the evolving noncompete landscape more generally, 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.

I continue to suggest proceeding on dual tracks:

First, be prepared to remove noncompetes from your agreements — but don’t do it yet.

If the FTC’s noncompete rule becomes effective, you’ll need to stop using noncompetes within 120 days of publication (i.e., by September 4) and notify employees that their noncompetes are void. (As we know from our California experience, that can be an involved process — and this time it will cover the whole country.) So, I would be prepared, but would not pull the trigger unless and until required.

I would, however, continue to think critically about who you need to have bound by a noncompete. Restrict your use of noncompetes to those roles/individuals who can likely cause significant irreparable harm to the company if they were to take a similar role at a competitor.

Second, continue to review and enhance appropriate available protections for your company’s trade secrets, other confidential information, customer relationships, and workforce on the assumption.

Two good resources for ensuring you consider available options are:

In short, the following are some of the immediate things to be thinking about:

  • Reviewing and updating agreements and policies that are not compliant with all of the new state-law developments. This includes, in particular, noncompetes, broad confidentiality agreements, and other agreements in the crosshairs (including no-recruit agreements, nonsolicitation agreements, anti-moonlighting provisions, and training repayment agreements), as well as internal policies that my be treated like impermissible restrictions on employee competition.
  • Reviewing and updating procedures (including the use of data loss prevention software) for protecting trade secrets, other confidential information, and goodwill (see trade secret protection program primer and checklist).
  • Using supplemental agreements and approaches to mitigate the impact of the tightening restrictive covenant laws. For example:
    • Notice provisions (“true” garden leave clauses) may, to the extent enforceable, offer meaningful protection for a short term. Even the FTC’s new Rule acknowledges that these agreements fall outside the scope of the Rule.
    • Springing noncompetes (a court-ordered noncompete as a remedy for a violation of other restrictive covenants or obligations) may create both a deterrence effect and provide a partial remedy for wrongdoing that is discovered early enough. This is a tool created years ago for a client who did not want to use a noncompete, but was worried about the impact of employees violating the other restrictive covenants. It has since been incorporated into Massachusetts noncompete law (MNAA, G.L. c. 149, § 24L(c)).
  • Emphasizing training. Never lose sight of one of the easiest and most effective tools you have is to educate and train employees, especially at onboarding and off-boarding, and with special attention to employees working remotely.

As you consider the above, it is often helpful to think of the strategies from how they might be implemented at each of the three stages of the employment lifecycle:

Note:  In the past, I have suggested considering what I’ve called “compensation-for-noncompetition-choice agreements,” i.e., paying a former employee for and while they voluntarily refrain from competing. It is similar to a mandatory noncompete where the former employee is paid during the restricted period, but the noncompete is voluntary and entirely left to the employee’s choice. It’s also the inverse of a compensation-for-competition agreement, where the employee pays the former employer if/when the former employee competes. Because of the change of approach (both its voluntary nature and that the payment is to the employee, as opposed from the employee), it should have a greater chance that a court would not deem it to be a noncompete or penalty. Indeed, compliance would be completely voluntary, so there should be no need to challenge it. However, the FTC has expressly identified agreements like this as functional noncompetes under the Rule — and independently a likely violation of antitrust law. As a consequence, unless operation of the FTC’s Rule is enjoined, I would refrain from implementing these types of agreements at this time.

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*Hat tip (as John Marsh would say) to Brent Caslin at Jenner & Block for identifying the NLRBs settlement with Juvly. 

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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country and helping me make sure that all of our resources are current and accurate.