Legal Alerts

NLRB's General Counsel Takes Stance Against Non-Compete Agreements

(June 8, 2023) - Last week, the National Labor Relations Board’s (NLRB) General Counsel, Jennifer A. Abruzzo, issued a memorandum to all regional directors, officers-in-charge, and resident officers detailing her position that, except in very limited circumstances, most traditional non-competition agreements violate Section 8(a)(1) of the National Labor Relations Act (NLRA). Section 8(a)(1) prohibits employers from interfering, restraining, or coercing employees from exercising their Section 7 rights “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

Why is Abruzzo Taking This Position (According to the Memo)?

Abruzzo’s memo begins with the general assumption that non-competition provisions are overbroad since they interfere with employees’ attempts to exercise their Section 7 rights. This overbreadth, Abruzzo contends, dissuades employees subject to the agreements from exercising their Section 7 rights “because: employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions….”

The memo briefly examines five specific types of activity protected by Section 7 of the NLRA and how non-competition agreements run afoul of those protections. Specifically, Abruzzo contends that they chill employees from: (1) concertedly threatening to resign to demand better working conditions; (2) concertedly resigning to ensure better working conditions; (3) “concertedly seeking or accepting employment with a local competitor to obtain better working conditions;” (4) soliciting “co-workers to go work for a local competitor as part of a broader course of protected concerted activity;” and, (5) seeking employment “to specifically engage in protected activity with other workers at an employer’s workplace.”

When, According to Abruzzo, Are Non-Competes “Okay” Under the NLRA?

The memo stops short of stating that all non-competition agreements violate the NLRA. Abruzzo suggests that non-competition provisions do not violate the NLRA if they “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.” Without going into detail, Abruzzo further suggests that there may be special circumstances “in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified.”

What Does This Mean For Employers?

While Abruzzo’s opinion – on the heels of the Federal Trade Commission’s proposed rule to ban non-competition agreements – is alarming for employers, it is important to keep in mind that the NLRA does not apply to all employees. In particular, Abruzzo’s opinion does not apply to employees who are managers or supervisors as defined under the NLRA. Further, her opinion is not binding. It will be some time before it’s approved by the NLRB. That said, it is a good time for employers to ensure that their non-competition agreements comply with all current laws and are narrowly tailored to protect the employer’s legitimate interests.

For more information on this development, contact the authors of this alert. Visit our Labor & Employment Practice and Trade Secrets & Non-Compete Disputes Practice pages for additional alerts in this area.

Authors:

David A. Campbell, Partner

Jacqueline Houser, Partner

Christopher I. Khasho, Associate

Related Practices

• Labor & Employment
• Traditional Labor
• Employment Advice & Counseling
• Executive Compensation & Employee Benefits
• Trade Secrets & Non-Compete Disputes

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