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.
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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.