Earlier this year the Federal Trade Commission (FTC) issued proposed rules prohibiting the use of non-compete agreements with most employees. Non-compete agreements restrict an employee from leaving an employer and taking another job – usually but not always – in the same business, for a specific period of time and within a limited geographic area. Historically the purpose of non-compete agreements was to protect confidential information about a business from being poached by a competitor or the ex-employee themselves.

Another practice employers use to protect the investment in an employee is to have an employee agree to repay training costs if the employee leaves within a certain time frame. Some medical institutions have taken legal fire over allegedly onerous re-payment agreements with nurses and other staff that receive additional training while working for hospitals and such.

Recently the National Labor Relations Board (NLRB) joined the battle against these practices by issuing an unfair labor practice complaint against a cosmetics company for having both non-compete and training repayment policies in place. Though NLRB General Counsel issued a memo earlier this year about the NLRB’s anti non-compete position, it had not taken any stance on training repayment provisions.

NLRB General Counsel Jennifer Abruzzo alleged non-compete agreements illegally restrict a worker’s right to change jobs. GC Abruzzo’s theory is that by cutting off an employee’s ability to take another job in the future, the employer violates the worker’s Section 7 rights by removing tools they can use to fight for better working conditions. These tools would be using the threat to resign as a group or quitting to go to a competitor.

Now in a first for the NLRB, the agency is also alleging training repayment agreements as an unfair labor practice because they also hold an employee to their job and prevent them, under fear of having to payback training costs, if they leave to soon. With this challenge against training repayment provisions the NLRB joins the Consumer Financial Protections Bureau who also is challenging training repayment provisions. The new NLRB complaint is based upon a company called Harper Holdings LLC, also called Juvly Aesthetics. The company asked two workers to repay $60,000 and $50,000 of training costs when they sought to leave the company before the completion of the work requirements in the non-agreement.

Employers should keep in mind that the NLRB complaint as well as the FTC and Consumers Financial Protections Bureau proposed regulations do NOT have the power of law behind them yet. The NLRB complaint is based upon a legal theory that has not been signed off by even an Administrative Law Judge let alone the NLRB. And the proposed non-compete rules issued by the FTC are still just that – proposed. The FTC has delayed a vote on its rules until April 2024 due to the large number of comments that were submitted.  That said, both the NLRB and the FTC are pursuing complaints against employers.

It is recommended that employers take inventory of all their existing restrictive covenant agreements. This includes non-solicitation, confidentiality, and non-disclosure clauses to ensure reasonableness. At issue is whether employers and employees have the right to freely contract with one another. Employers may want to avoid being pulled into the fray themselves and avoid being a test case.

Sources: Fisher Phillips Insights. FTC’s Non-compete Ban Reportedly Delayed Until 2024: Your 7 Step Guide While Waiting (5/25/2023)

LAW 360 Employment Authority. NLRB GC Fires Warning Shot Over Repayment, Non-competes (9/12/2023)

ASE EPTW. Federal Trade Commission Proposes Elimination of Non-compete Agreements (1/11/2023)