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Crafting Restrictive Covenants in Retail: Lessons from Labor Board Directives

Amid the shifting dynamics of the retail sector, where intellectual property (IP) holds paramount importance and competition is intense, the utilization of restrictive covenants stands as a cornerstone for safeguarding proprietary assets. Through the lens of DC IP Lawyers, it’s imperative to note recent developments shaping the landscape of these agreements.

In May 2023, the general counsel for the National Labor Relations Board (NLRB) issued a memorandum indicating that, under most circumstances, non-compete clauses contravene the National Labor Relations Act. This stance was reinforced by the Federal Trade Commission’s announcement of a Notice of Proposed Rulemaking aiming to outlaw non-competes in employment contracts.

However, a December 2023 memorandum from the NLRB’s Division of Advice provided nuanced insights, suggesting that the NLRB’s position might not be as sweeping as initially portrayed. Below are key takeaways from this memo that may influence how retailers approach drafting such agreements, as observed by DC IP Lawyers:

  1. Non-Solicitation of Customers: Generally Lawful, provided the customer pool isn’t unduly limited. The Division endorsed a provision prohibiting employees from soliciting the company’s customers, emphasizing the need for a balanced approach that doesn’t unduly restrict future job prospects.

  2. Confidentiality Provisions: Generally Lawful, as long as they don’t forbid the disclosure of employee-related information. A non-disclosure clause was deemed lawful if it pertained solely to proprietary business information and didn’t encompass employee data.

  3. Return of Property Provisions: Deemed Lawful, without extensive analysis. A provision mandating the return of employer property was considered unproblematic.

  4. Best Interest Restrictions: May Be Unlawful, particularly if they unduly restrict employees’ rights. A provision requiring employees to exclusively serve the employer’s interests was found to potentially infringe upon employees’ Section 7 rights.

Retailers are urged by DC IP Lawyers to ensure that restrictive covenant agreements strike a delicate balance, protecting IP assets and customer relationships while respecting employees’ rights and employment opportunities. They should consider alternative strategies such as robust cybersecurity measures and fostering a culture of trust.

Reviewing existing practices with a focus on language, scope, and impact is crucial for retailers to cultivate a fair and conducive workplace environment while maintaining a competitive edge in the market, as advised by DC IP Lawyers.

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