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Court Finds That Non-Compete Agreement Violates FLSA

Minteq International, Inc. supplies materials to steel-makers. Minteq’s employees are represented by the engineers’ union of the AFL-CIO and covered by a collective bargaining agreement (CBA). In 2012, without bargaining or even notifying the union, the company began requiring new employees to sign noncompete and confidentiality agreements (NCCA) which barred employees from working for Minteq’s competitors for 18 months following their employment and disclosing confidential or proprietary information. They also included nonsolicitation and at-will employment clauses.

In 2014, the union filed an unfair labor practice charge against Minteq. The National Labor Relations Board found that Minteq violated the Fair Labor Standards Act (FLSA) by failing to afford the employees’ union notice or an opportunity to bargain over Minteq’s unilateral implementation of the NCCA. In a recent ruling, the U.S. Court of Appeals for the District of Columbia Circuit upheld the Board’s findings (Minteq International Inc., et al., v. Nat’l Labor Relations Board, No. 16-1276 (D.C. Cir. 2017)).

NLRB held that the noncompete agreement was a mandatory subject of bargaining not covered by the CBA. FLSA requires parties to bargain in good faith regarding “wages, hours, and other terms and conditions of employment.” As such, Minteq’s noncompete/confidentiality agreement was a mandatory subject of bargaining because it directly “settle[s] an aspect of the relationship between the employer and the employees.” (First Nat’l Maint. Corp. v. NLRB, 452 U.S. 666 (1981)).

The Board also held that Minteq separately violated FLSA by implementing the nonsolicitation and at-will provisions.

On appeal, the district court concluded that “The NCCA prohibits an employee from working for another company that might have any connection to [Minteq’s] business both during his employment and for 18 months afterward, effectively imposing a cost in lost economic opportunities on employees as a consequence of working for [Minteq].” It also “imposes economic opportunity costs on employees by broadly restricting their ability to benefit from their discoveries, inventions, and acquired knowledge related to working for” Minteq. Thus the terms had a direct economic impact on employees and represented matters suitable to collective bargaining.

The court rejected Minteq’s argument that the noncompete provisions weren’t subject to bargaining because they were already covered in the existing CBA. “[N]othing in the management-rights clause of the CBA permits Minteq to impose obligations on employees after they leave employment.”

After finding Minteq’s unilateral implementation of the NCCA unlawful, the court also found that the nonsolicitation and at-will provisions violated FLSA, which makes it an unfair labor practice for an employer “to interfere with, restrain, or coerce employees in the exercise of their [] rights to unionize and engage in related labor activities.”

The nonsolicitation clause restricted employees from “directly or indirectly . . . , solicit[ing] or encourage[ing] any . . . customer or supplier of the Company to terminate or otherwise alter his, her or its relationship with the Company.” The Board had found that employees could interpret this provision as prohibiting them from urging boycotts of Minteq’s products in support of a labor dispute.

Pursuant to the CBA, Minteq can discharge or discipline probationary employees without just cause or recourse to the grievance and arbitration process. The court agreed with NLRB that an employee could reasonably construe the at-will employment provision “to make employees removable at will for the entire time they are employed, rather than only during the initial six-month probationary period as provided in the CBA.”

Consequently, Minteq could not implement the nonsolicitation or at-will provisions regardless of whether they were covered by the CBA, because they independently violated FLSA.

Our Chicago non-compete agreement attorneys have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.

DiTommaso Lubin Austermuehle a firm of Chicago business dispute lawyers handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers with offices near Evanston and Skokie have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results. We have successfully represented a number of doctors in non-compete, partnership and other business disputes.  We understand the complexities of physician partnership and non-compete agreements.

DiTommaso Lubin Austermuehle a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Our firm has also handled many shareholder and LLC disputes between owners of closely held corporations, and LLCs.

Based in Oakbrook Terrace and downtown Chicago, our Naperville and Carol Stream non-compete agreement and business dispute lawyers take cases from Schamburg and Arlington Heights and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact one of our Chicago business dispute lawyers through the Internet or call toll-free at 1-877-990-4990 today.

Vincent L. DiTommaso

DiTommaso Lubin Austermuehle’s Oak Brook, Waukegan, and Wheaton litigation attorneys have more than three decades of experience helping clients unravel the complexities of Illinois and out-of-state non-compete and trade secret theft laws. Our Chicago business dispute attorneys also represent individuals, family businesses and enterprises of all sizes in a variety of legal disputes, including disputes among partners, shareholders and LLC members as well as lawsuits between businesses and and consumer rights, auto fraud, and wage claim individual and class action cases. In every case, our goal is to resolve disputes as quickly and successfully as possible, helping business clients protect their investments and get back to business as usual. From offices in Oak Brook, near Hinsdale and Elmhurst, we serve clients throughout Illinois and the Midwest.