3 Agreements Employers Should Update ASAP!

By Zakiyah Bradford

In recent years, government agencies and courts have initiated many changes to the status quo in the employer-employee relationship. Certain clauses in standard employment agreements are becoming obsolete and, in some instances, even a liability. Here are three agreements that employers should update and, if necessary, consult with legal counsel to review:

  1. Mandatory Arbitration Agreements

    After a few years in limbo, the Ninth Circuit concluded that state laws such as California’s AB 51 (2019) that prohibit employers from, and even criminalize the practice of, entering into arbitration agreements with employees conflict with the Federal Arbitration Act (“FAA”) and are thereby preempted[1]. Employers are once again permitted to require candidates and employees to submit to arbitration for claims arising out of the employment relationship. This topic has been a point of contention in California. Hence, it will be of little surprise if the state decides to challenge the Ninth Circuit’s conclusion up to the U.S. Supreme Court.

    In the meantime, employers are encouraged to update existing arbitration agreements for appropriate, effective language and consult counsel regarding any pending matters that may be impacted by the Ninth Circuit’s recent decision.

  2. Non-Disparagement and Confidentiality Agreements

    General Counsel Jennifer Abruzzo of the National Labor Relations Board (“NLRB”) issued guidance in March 2023 relating to the NLRB’s McLaren Macomb decision issued in February[2]. According to Abruzzo’s guidance, overly broad non-disparagement and confidentiality agreements as incentive for an employee to receive severance pay and benefits violate Section 7 of the National Labor Relations Act (“the Act”). Non-disparagement and confidentiality clauses are customarily included in severance and release agreements. While the guidance confirms that severance agreements are generally still enforceable, the NLRB’s recent decision prohibits severances from including any restrictions upon or interference with the employees’ rights to engage with other employees.

    Of particular interest, Abruzzo’s guidance affirms that the McLaren Macomb decision will apply retroactively, meaning severance agreements signed by employees prior to February 2023 will be essentially unenforceable. In addition, Abruzzo further asserts that the mere proffer of an overly broad non-disparagement agreement violates Section 7 rights regardless of whether the employee eventually signed it. Hence, employers are advised by Abruzzo to remedy prior violations by contacting employees subject to the overly broad non-disparagement or confidentiality agreements and advise that the agreements are null and void.

    Abruzzo concludes in her guidance that non-disparagement and confidentiality agreements may be lawful when they are narrowly-tailored. Employers who utilize standard severance agreements that contain non-disparagement and confidentiality provisions are encouraged to consult with a legal professional to review and, if necessary, revise the company’s severance agreements going forward.

  3. Non-Compete Agreements

    As of 2023, non-compete clauses are only prohibited in three states – California, North Dakota, and Oklahoma. The U.S. Federal Trade Commission (“FTC”) proposes to impose this prohibition of noncompete clauses nationwide[3]. According to the FTC, noncompete agreements inhibit worker mobility which keeps wages artificially low absent labor market competition. In January 2023, the FTC released a proposed rule that will deem noncompete agreements as a method of unfair competition and ban employers from entering into such agreements with their employees, including independent contractors. The FTC’s rule goes even further than existing California law by requiring employers to notify employees who have entered into such agreements that the non-compete agreement is invalid and that the employee is thereby released from the covenant not to compete. What’s more, the FTC’s proposed rule coincides with enforcement actions that the FTC has already started to take against employers with non-compete agreements. So far, FTC enforcement actions have resulted in employers releasing hundreds of employees from non-compete agreements.

    Non-compete agreements may become obsolete in the near future. Employers’ interests in protecting trade secrets and confidential and proprietary information such as customer information can still be protected outside the use of non-compete agreements. Employers currently enforcing non-compete agreements should seek legal counsel for advice on how to proceed.

[1] Chamber of Commerce of the United States v. Bonta, 62 F.4th 473 (2023)

[2] See GC-23-05. https://www.nlrb.gov/guidance/memos-research/general-counsel-memos

[3] https://www.ftc.gov/system/files/ftc_gov/pdf/noncompete_nprm_fact_sheet.pdf


About the Author

Zakiyah Bradford

Zakiyah Bradford is an Associate Attorney at SW&M with experience in Labor and Employment Law. Prior to joining the team, she conducted anti-discrimination/harassment trainings for thousands of personnel in an effort to prevent and if needed, resolve HR complaints. To […]

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