Many employers have a policy in their employee handbook or in employment agreements that requires an employee to devote their full time to the employer’s business (i.e. no “moonlighting”). For example:

Except as hereinafter provided, the Employee shall at all times during the continuance of this Agreement devote her full time to the conduct of the business of the Employer and shall not directly or indirectly, during the term of this Agreement engage in any activity competitive with or adverse to the Corporation’s business or welfare whether alone, or as a partner, officer, director, Employee, advisor, agent or investor of any other individual corporation, partnership, joint venture, association, entity or person.

This sounds reasonable, right? Not to the NLRB’s Division of Advice, which provides advice to regional offices as to whether particular conduct violates the National Labor Relations Act (the “Act”). In a recent memorandum (the “Memo”), the Division of Advice found this provision to be unlawfully overbroad, opining that the policy would have a “reasonable tendency to chill employees in the exercise of their Section 7 rights” and that it would prohibit employees from engaging in union organizing or protected concerted activities that the employer could deem to be “adverse” to its business. Additionally, the Division of Advice thought that the provision could potentially prevent an employee from engaging in outside employment. Quoting from the Memo: “The General Counsel takes the position that rules or contract provisions directly or indirectly prohibiting moonlighting are generally unlawful…”

The Stericycle Decision

The Division of Advice’s memorandum is not the first time the NLRB has scrutinized language in employee handbooks that the agency interprets as overly restrictive of employee rights. In the recent NLRB decision in Stericycle, Inc., the Board stated that an employee handbook rule or policy is unlawful if it has a reasonable tendency to chill employees from exercising their Section 7 rights. Employers must now prove that there is a legitimate and substantial business interest in the rule and that they cannot advance the interest with a more narrowly written rule. Employers are going to have to consider the “potential” impact and interpretation of a rule and whether their business interests can be achieved with a narrower rule. The types of policies that could be challenged under the Stericycle standard include confidentiality policies, sexual harassment policies, dress codes, and collegiality and civility policies. Under the new standard, if any of these policies could be reasonably construed to interfere with employees’ exercise of Section 7 rights, these policies would be considered unlawful by the NLRB.

Other Challenged Policies

Other employment policies which have recently been challenged include noncompetition provisions. The General Counsel argues that non-compete provisions are overbroad when the provision could reasonably be interpreted by employees to limit their ability to resign by denying them the ability to seek other opportunities for which they are qualified.

In September 2023, the NLRB’s General Counsel commenced a lawsuit against Harper Holdings, LLC (which does business as Juvly Aesthetics), challenging the company’s requirement that if an employee receives certain training, they must repay all, or a portion of, the training costs if they leave employment within a specified period. It is clear that the General Counsel and the NLRB are expanding the definition of protected concerted activity and are concerned about policies which limit the mobility of employees in changing employment.

Recommendations

When employers create work rules, they should consider whether there is a potential in the work rule to be interpreted to chill an employee’s right to discuss with other employees or with a labor union their concerns and issues about wages, hours and working conditions.

At the present time, if an employee handbook policy is the subject of an unfair labor practice charge, and the employer policy and rule is deemed to be unlawful, the NLRB would order that such policy or rule must be withdrawn, with no financial penalty to the employer. If the employer disciplines or terminates an employee for violating a work rule that the NLRB finds to be unlawful, then the employer will be liable for backpay and if applicable, reinstatement of the disciplined employee.

These are all very recent challenges. We don’t know if the NLRB will agree with the Division of Advice’s memoranda, or if the NLRB decisions will be affirmed by a federal court of appeals.  However, it is reasonable for employers, whether union or nonunion, to examine work rules to confirm they are necessary, yet narrow enough, to protect the employer’s business interests while not infringing an employee’s Section 7 rights. Employers should expect that the NLRB will continue to limit what employer policies can say.