The National Labor Relations Board's ("NLRB") General Counsel Jennifer Abruzzo announced in a memo yesterday that noncompete agreements in employment contracts violate federal labor law except in limited circumstances, because they interfere with employees' rights under Section 7 of the National Labor Relations Act ("the Act") to engage in concerted activity to improve their wages or working conditions. This new attack on noncompete agreements follows the Federal Trade Commission's announcement on January 5 that it plans to issue a rule outlawing noncompete agreements. Abruzzo's memo is not binding law, and her positions will not become so until the Board has adopted them in a particular case. But she has strongly encouraged the Board to do so, and now two federal agencies are waging war on noncompete agreements and complicating the landscape for employers.
The NLRB acts as both an investigatory and prosecutorial agency. When an employee or union files an unfair labor practice charge alleging that an employer has violated the Act, the NLRB's regional office investigates the charge. If it finds the charge has merit, the regional director issues a complaint against the employer, and its legal team prosecutes the case before an Administrative Law Judge. Employers can appeal an unfavorable decision from the ALJ to the NLRB and, ultimately, to a federal circuit court of appeals, but that is a long and costly process.
Abruzzo's memo directed to NLRB field staff and regional directors asserts that if an employee could reasonably construe a non-compete provision to deny them the ability to quit or change jobs, the provision is overbroad and violates federal law. She contends that noncompete provisions chill employees from "concertedly threatening to resign to demand better working conditions," "concertedly seeking or accepting employment with a local competitor to obtain better working conditions," "soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity," and "seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer's workplace." By this strained logic, she encourages NLRB regional directors to submit cases with arguably illegal noncompete agreements to a division of her office that decides whether to issue complaints in certain cases. Abruzzo suggests that the NLRB should seek make-whole relief on behalf of employees who, because of their employer's unlawful maintenance of an overbroad non-compete provision, can demonstrate that they lost opportunities for other employment, even absent additional conduct by the employer to enforce the provision.
Although Abruzzo's memo acknowledges the possibility of narrowly tailoring a non-compete provision to special circumstances justifying an infringement on employee rights, she forecloses the desire to avoid competition from a former employee as constituting a legitimate business interest. The memo also makes clear that an employer's business interest in retaining its employees or protecting its investments in training employees "are unlikely to ever justify an overbroad non-compete provision" and can be addressed in narrowly tailored trade secret or retention agreements. By way of example, Abruzzo cited her authorization of a complaint targeting an allegedly unlawful agreement that prohibited low-wage workers from accepting employment with another company in the same business throughout the entire state for a period of two years after termination of employment – even though that type of agreement may be fully compliant with several states' laws on non-competes. At present, non-compete clauses affect nearly one in five American workers. While protecting the mobility of low-wage earners with no access to trade secrets is a reasonable goal, Abruzzo's memo announces a broad view and is not restricted to those types of employees.
So what should employers do? It will take some time before the NLRB adopts Abruzzo's position as law, and the unlucky employer to lose the test case may challenge the agency's ruling in the circuit courts. In addition, state courts in particular will likely enforce agreements that comply with state laws and precedent governing noncompete agreements. But the climate on noncompete agreements is changing, and it would be wise to reassess your use of noncompete agreements, with a focus on which employees you truly need to cover and targeted provisions that get you the protection you need without being unnecessarily overbroad.
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