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Employer Trying to Implement a Non-Compete and Confidentiality Agreement Unilaterally? Probably Not a Good Idea...


Minteq International, Inc. and Specialty Minerals, Inc. v. NLRB - D.C. Circuit Court of Appeals


Facts:  In 2012, Minteq International, Inc. ("Minteq") began requiring new employees to sign a non-compete and confidentiality agreement.  (At the time, Minteq's employees were represented by the International Union of Operating Engineers, Local 150, AFL-CIO and covered by a collective bargaining agreement.)  However, Minteq did not bargain or give notice to the Union in regard to the agreement or the restrictions contained therein.  The relevant portions of the non-compete agreement prohibited Minteq emloyees from working for Minteq's competitors for 18 months following their employment and further prohibited disclosure of confidential or proprietary information.

On October 30, 2014, the Union filed an unfair labor practice charge with the National Labor Relations Board ("NLRB") against Minteq for its failure to bargain with the Union over the non-compete and confidentiality agreement.  Ultimately, the NLRB held that the non-compete agreement was a mandatory subject of bargaining not covered by the collective bargaining agreement.  Therefore, the NLRB held that Minteq violated Section 8(a)(1) and (5) of the National Labor Relations Act ("NLRA") by failing to afford the employees' union notice or an opportunity to bargain over Minteq's unilateral implementation of the requirement that employees sign the agreement.  Minteq subsequently petitioned for review.

Holding:  The Court began its analysis with a reference to long held precedent that the "classification of bargaining subjects as 'terms or conditions of employment' is a matter concerning which the Board [NLRB] has special expertise."  So long as the NLRB's determinations are "reasonably defensible", its determinations regarding which collective bargaining subjects constitute mandatory subjects of bargaining will be upheld.  As a result, the Court's general approach is to be deferential.  However, the Court noted that it gives no special deference to the NLRB's interpretation of contracts and instead interprets contracts de novo (starting from the beginning...without reference to prior conclusions or rulings).

In this instance, the NLRB held that the non-compete and confidentiality agreement were a mandatory subject of bargaining because it directly "settle[s] an aspect of the relationship between the employer and the employees."  Readers might recall that the NLRA requires parties to bargain in good faith regarding "wages, hours, and other terms and conditions of employment."  The NLRB had ruled that the the non-compete and confidentiality agreement prohibited an employee from working for another company in competition with Minteq for 18 months after employment with Minteq ended, which effectively imposed a cost in lost economic opportunities on employees.  As well, the agreement imposed economic opportunity costs on employees by placing a broad restriction on their ability to benefit from their discoveries, inventions, and acquired knowledge related to working for Mintez.  Consequently, the non-compete and confidentiality agreement have a direct economic impact on employees...thus falling within the scope of matters suitable for collective bargaining.  Therefore, in accordance with long held precedent that non-compete and confidentiality agreements are mandatory subjects of bargaining, the Court held the NLRB's reasoning was "reasonably defensible" and would be upheld.

Judgment:  The Court of Appeals denied Minteq's petition for review and upheld the NLRB's ruling on the grounds that sufficient evidence and precedent existed to establish that the non-compete and confidentiality agreement fell within the scope of mandatory subjects of bargaining.

The Takeaway:  Excuse the brevity of the analysis of the Court's holding, but I wanted to streamline the opinion and make the Court's ruling clear.  I think this case demonstrates the Court's willingness to defer to the NLRB's decision (so long as it is reasonably defensible).  In this instance, the evidence and prior precedent from other circuits lent itself to the argument that Minteq's failure to give the Union notice and an opportunity to bargain in regard to implementation of the non-compete and confidentiality agreement violated the NLRA.  Because the impact of the non-compete and confidentiality agreement fell within the scope of matters suitable for collective bargaining, Minteq simply could not find a rational reason for why the unilateral implementation of the agreement should be enforced.

 Majority Opinion Judge:  Judge Sentelle

Date:  April 28, 2017

Opinion:  hr.cch.com/eld/MinteqNLRB042817.pdf

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