Key Takeaways:
- The General Counsel for the National Labor Relations Board (“NLRB”) has issued a memo setting forth her view that most employee non-competition agreements violate the National Labor Relations Act (the “Act” or “NLRA”), on the theory that such agreements chill employees in their exercise of their right to engage in protected concerted activity under Section 7 of the Act.
- The memo comes on the tail of other efforts by the NLRB General Counsel’s Office taking aim at relatively standard terms in employment agreements, including guidance the General Counsel’s Office issued earlier in 2023 arguing that only very narrow confidentiality and nondisclosure terms in separation agreements were lawful under the Act.
- While the memo does not change existing law, it confirms a strong desire by the current administration to curb the use of employee non-competes in most contexts.
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On May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued a memo explaining her view that, except in limited circumstances, employee non-competition agreements violate the Act. While the memo only reflects General Counsel Abruzzo’s interpretation of the Act and does not change existing law on employee non-competes, the memo reflects a larger effort by the Biden administration to prohibit such agreements at the federal level.
In the memo, General Counsel Abruzzo argues that non-compete agreements between employers and employees should be prohibited because they interfere with employee rights under Section 7 of the Act. Section 7 protects an employee’s right to self-organize and participate in labor organizations, or engage in other concerted activities for the purpose of mutual aid or protection. According to Abruzzo, non-compete provisions tend to restrict an employee’s Section 7 rights when the provisions could reasonably be construed to limit an employee’s access to other employment opportunities. She sets out a handful of ways in which such agreements prevent employees from engaging in protected conduct, including by preventing employees from: (1) collectively threatening to resign or actually resigning to demand better working conditions; (2) seeking or accepting employment with local competitors to obtain better working conditions; (3) soliciting their co-workers as part of a broader course of protected, collective activity; and (4) seeking employment, at least in part, to engage in protected activity (e.g. union organizing) with other workers at an employer’s workplace.
The memo proposes a new standard for determining the permissibility of non-compete provisions. It explains that non-compete provisions violate the Act unless the provision is narrowly tailored to special circumstances that justify infringing on employee rights. According to Abruzzo, however, the desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.
Abruzzo also notes that employers may still protect legitimate business interests such as proprietary or trade secret information by using narrowly tailored workplace agreements. However, such agreements should not be imposed on low or middle wage workers who lack access to trade secrets or other protectable interests.
Employers should note that the NLRB only has jurisdiction over “employees” as defined in the Act. Accordingly, the General Counsel’s view would not impact non-compete agreements for managers or supervisors, who are excluded from the scope of Section 7.
Importantly, this memo is not yet law. But it is a clear signal that the General Counsel intends to push for this change in federal law before the NLRB. Moreover, it is another step in the Biden administration’s push to limit the use of non-compete agreements nationwide. On January 5, 2023, the U.S. Federal Trade Commission (“FTC”) proposed a new rule that would impose a near-complete ban of the use of non-compete agreements by employers. To date, the proposed rule is still pending, but the FTC is expected to vote on the proposal in 2024. These are in addition to efforts at the state level to limit the enforceability of non-competition agreements.
The memo, along with other federal and state activity, signals that a sea change may be coming for the enforceability of non-competition agreements. Although we are still far off from a nationwide ban on non-competes, employers should review their non-compete agreements and consider whether and when to enter such agreements, considering factors such as an employee’s ability to access trade secrets or proprietary information at the job, the level of skill required to perform a job, and the availability of similar positions in the employer’s geographic area.
