NLRB Advice Memoranda, Object Computing, National Labor Relations Board, (Sep 8, 2022)

The Region submitted this case for advice as to whether an employment agreement contains unlawfully overbroad confidentiality and non-solicitation provisions. If so, the Region further seeks advice as to whether the Employer is violating the Act by suing in state court to enforce those provisions against former employees who have not engaged in any Section 7 activity. We conclude that the provisions at issue as well as the lawsuit to enforce them are lawful under extant Board law, and the Region accordingly should dismiss the charge, absent withdrawal.

Facts

The Charging Party began working for the Employer, a software company, in​     ​ signed an employment agreement that prohibited​     ​ from using the Employer's confidential information for non-work purposes, disclosing that information to any third party, or soliciting the Employer's employees to quit or work for a competitor.

The agreement defines confidential information as non-public information relating to the Employer's proprietary technology and the way it conducts its business. The definition provides a list of examples, the last of which is “employee data.”

Under the non-solicitation provision, for the term of ​     ​ employment and 24 months thereafter, the Charging Party agreed not to “[s]olicit, recommend, or persuade any person or entity who is employed or engaged by [the Employer] to terminate his or her employment or other relationship or contract with [the Employer], or to become employed or engaged by any business which competes with [the Employer]” or “interfere with the relationship of [the Employer] with any such employee.”

In ​     ​ 2020, the Charging Party resigned along with two other employees and formed a new software company, which hired one of them. The Charging Party's plans originally called for ​     ​ new company to maintain an arm's length business relationship with the Employer, but that fell through. Nevertheless, the Charging Party moved forward with the new company and began a business relationship with one of the Employer's customers.

In July 2021, the Employer filed a lawsuit in Missouri state court against the Charging Party and the other two former employees. The suit alleges that the Charging Party's company uses the Employer's technology and software. It seeks a declaratory judgment concerning the Employer's ownership of that intellectual property, damages and specific performance for breaches of the confidentiality and non-solicitation provisions, and an injunction against further breaches.

Action

There is no allegation or evidence in this case that the Charging Party or any other employee engaged in any activity protected by Section 7. Nor is there any allegation or evidence that the Employer imposed any part of the employment agreement in response to, or applied it to restrict, the exercise of those rights. Rather, the Charging Party appears to be using the National Labor Relations Act to arm ​     ​ with leverage in a commercial dispute. But regardless of ​     ​ motives, we must address the lawfulness of the rules at issue; namely, whether the confidentiality and non-solicitation provisions, “when reasonably interpreted, would potentially interfere with Section 7 rights,” and if so, “whether any adverse impact on NLRA-protected conduct is outweighed by legitimate justifications.” Boeing, 365 NLRB No. 154, slip op. at 3-4 (2017). [1] If either of the rules are unlawful, a lawsuit enforcing them could violate the Act.

As to the confidentiality provision, we conclude that under the test set forth in Boeing, supra, reasonable employees would not understand the reference to “employee data” to prohibit them from discussing wages or other terms and conditions of employment with each other or with a union. The provision cites employee data as an example of “information concerning or relating to the way [the Employer] conducts its business.” And it situates the term at the end of a long list of categories of the Employer's intellectual property and internal business information. In that context, employee data “would be understood as referring to such things as the [Employer]'s staffing information, not employees' wage or contact information.” Argos USA LLC, 369 NLRB No. 26, slip op. at 2 (2020). See Motor City Pawn Brokers Inc., 369 NLRB No. 132, slip op. at 5 (2020) (“A reasonable employee would not read the handbooks' references to the ‘proprietary information … of employees' without taking into account the specific examples of confidential information listed in the documents.”). Indeed, we note that the Board reached similar conclusions even before Boeing. See Minteq International, Inc., 364 NLRB 721, 726 (2016) (finding, under Lutheran Heritage Village-Livonia, 343 NLRB 646 (2004), that employees would reasonably construe a broad, final phrase in a list of types of confidential information “to refer to the preceding examples of proprietary information and trade secrets, not information related to employees' wages or working conditions”), enforced, 855 F.3d 329 (D.C. Cir. 2017); Mediaone of Greater Florida, Inc., 340 NLRB 277, 279 (2003) (similar analysis as to “employee information”).

Likewise, again applying Boeing, we conclude that reasonable employees would not interpret the agreement's non-solicitation provision as a restriction on their exercise of Section 7 rights. Viewed in context, the obvious purpose of the non-solicitation provision is to prevent employees from recruiting the Employer's employees to work for a competing business—as the Charging Party allegedly did here. In most circumstances, that conduct is disloyal and unprotected by the Act. See, e.g., Abell Engineering & Mfg., 338 NLRB 434, 434 (2002) (employee was lawfully discharged for “attempts to induce [coworker] to quit and take another job,” which “were unrelated to organizing the [employer's] employees or improving their conditions of employment with the [employer]); Clinton Corn Processing Co., 194 NLRB 184, 186 (1971) (former employee engaged in “unprotected conduct in inducing [employer's] employees to quit”). See also Quicken Loans, Inc., Case 28-CA-075857, Advice Memorandum dated Aug. 30, 2012, at 5 (“We conclude that the no-raiding provisions of the employment agreement do not violate the Act because attempts to induce employees to leave an employer are not a protected activity.”). Cf. North American Dismantling Corp., 341 NLRB 665, 666 (2004) (employee's efforts to take over a contract held by his employer were unprotected, as “[i]t is well settled that Section 7 of the Act does not protect employee overtures to contractual interference”).

To be sure, encouraging employees to work for a competitor can be part of a protected course of conduct. See, e.g., M.J. Mech. Servs., Inc., 325 NLRB 1098, 1106-07 (1998) (union salts did not engage in misconduct by urging employee to join union, which referred him to another employer); Boeing Airplane Co., 110 NLRB 147, 148-51 (1954) (the Act protected efforts to organize conference for employees to explore other job opportunities as part of campaign to put pressure on employer during contract negotiations), enforcement denied, 238 F.2d 188 (9th Cir. 1956). See generally Haynes Mechanical Systems, Case 27-CA-171581, Advice Memorandum dated July 25, 2016, at 5-8 (relying on such cases to find non-solicitation rule unlawful under Lutheran Heritage). But the reasonable employee contemplated by Boeing, “who is aware of [their] legal rights” but “does not view every employer policy through the prism of the NLRA,” LA Specialty Produce Co., 368 NLRB No. 93, slip op. at 2 (2019) (citation omitted), is unlikely to interpret the non-solicitation provision as covering those unusual circumstances.

We also note that even if a reasonable employee would understand the non-solicitation provision to potentially reach some Section 7 activity, the further balancing of interests that Boeing requires would favor the Employer. See, e.g., Motor City, 369 NLRB No. 132, slip op. at 5-7 (finding that employer lawfully maintained “facially neutral rules against disloyalty and disparagement … because the potential adverse impact on protected rights is outweighed by the justifications associated with the rules”). Indeed, even under pre-Boeing Board law, administrative law judges found prohibitions on recruiting employees for a competitor to be lawful on the basis that an employer has “overriding legitimate business considerations for imposing such restrictions.” Schwan's Home Service, 364 NLRB 170, 194 (2016) (adopted in relevant part in the absence of exceptions). See also Commercial Building Maintenance, Inc., No. 4-CA-30627, 2002 WL 533662 (Apr. 4, 2002) (ALJD finding that employer's need to “retain employees” and “protect its business methods and practices” outweighed employees' protected right to “solicit[] other employees to quit a nonunion employer and work for a union employer”). [2]

Because we find that the employment agreement does not violate the Act under extant law, the Employer's lawsuit to enforce it is neither unlawful nor preempted by the Act.

This email closes this matter in Advice as of today.

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