On May 30, 2023 Jennifer Abruzzo, General Counsel for the National Labor Relations Board , sent a memorandum to all Regional Directors expressing her view that except in limited circumstances, non-compete provisions in employment and severance agreements constitute unfair labor practices under Section 7 of the National Labor Relations Act (“NLRA”) because they “tend to chill employees in the exercise of Section 7 rights” which protect employees’ rights to take collective action to improve working conditions. While many mistakenly believe the NLRA’s reach only extends to unionized workplaces, both unionized and nonunionized employers are liable for unfair labor practices that violate employee Section 7 rights.
More specifically, the memorandum claims that non-competes interfere with employees’ ability to:
- Concertedly threaten to resign to secure better working conditions;
- Carry out concerted threats to resign to secure better working conditions;
- Concertedly seek or accept employment with a competitor to obtain better working conditions;
- Solicit co-workers to work for a competitor as part of a broader course of collective activity;
- Seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.
General Counsel Abruzzo noted that non-compete provisions chill the exercise of Section 7 rights “when the provisions could be reasonably construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.”
Permissible Non-Competes. Presumably because the NLRA does not apply to managerial staff, the memorandum notes that non-competes that only restrict managerial or supervisory employees, owners or truly independent contractors could be lawful. In addition, without providing any illustrative examples, General Counsel Abruzzo further noted that there might be “special circumstances” where a narrowly tailored non-compete is justified.
An Interagency Approach. Of particular concern to employers, the memorandum announced that NLRB is committed to an “interagency approach” to combating restrictions on the exercise of employee rights, including worker mobility. This is consistent with a 2022 memorandum of understanding between the NLRB and the Federal Trade Commission and the Department of Justice, both of which have issued pronouncements against the use of non-compete agreements. General Counsel Abruzzo’s memorandum is essentially an invitation for employees subject to non-competes to file complaints against their employers with the NLRB. As a result, employers can expect an increase in unfair labor practice charges challenging the legality of these agreements.
A Growing Trend. General Counsel Abruzzo’s memorandum is only the latest salvo in the growing attack on the enforceability of non-compete agreements. California, North Dakota, Oklahoma and Washington DC have enacted legislation effectively banning most non-competes. Nine states limit the use of non-competes to individuals with earnings above a salary threshold and similar efforts are underway nationally.
On the federal side, the Federal Trade Commission has proposed a new rule that would substantially ban the use of non-competes in response to an Executive Order from President Biden directing the agency to curtail their use. Should the rule be adopted, it will face years of legal challenges as an overreach of administrative authority.
Employer Actions
Given the increasing backlash against non-competes, coupled with the stated intention of the NLRB to prosecute the use of non-competes as unfair labor practices, employers should avoid efforts to impose or enforce these agreements against low paid, non-managerial employees absent unique circumstances. In addition, in the face of a growing judicial reluctance to enforce agreements that are not narrowly drafted to protect only the employers’ legitimate interests, employers should review all non-compete agreements and other post-employment restrictions with employment counsel to ensure compliance with this ever-changing landscape.