DOL Puts “Coercive” Contractual Provisions in the Crosshairs

In a newly released report from the Solicitor of Labor, the Labor Department announced its intention to crack down on what it considers widespread use of “coercive” employment contract provisions that violate federal law. 

The report identifies seven unlawful contract provisions: 

1. Rights waivers (such as mandatory arbitration agreements).

2. Worker classification designations (i.e. provisions that establish that a worker is an independent contractor, regardless of duties).

3. Indemnification provisions that shift liability to workers.

4. “Loser pays” legal fee provisions that require the losing party to pay attorneys’ fees in the event of a lawsuit.

5. “Stay or pay” provisions (such as requiring employees that do not stay on for a designated period to reimburse tuition paid for by the employer).

6. Confidentiality, nondisclosure (NDA), and non-disparagement provisions.

7. Safety reporting provisions that require workers to report safety issues to the employer before reporting it to an enforcement agency.

Employer considerations: 

• Nothing in the report changes employer legal obligations, but employers should expect an enforcement crackdown regardless of whether the law itself has changed. 

The bottom line: Given targeting of restrictive covenants through efforts by the NLRB and the FTC to crack down on non-compete agreements, confidentiality agreements, mandatory arbitration clauses, and “stay or pay” provisions, the DOL’s action reinforces the need to reevaluate use of such restrictions.