The new year could bring a shift in favor of employers using noncompete agreements. Last year, the National Labor Relations Board (NLRB) general counsel took a firm stance against these agreements. However, a recent case could signal a more employer-friendly trend.
In a May 2023 memo, NLRB General Counsel Jennifer Abruzzo stated noncompetes violate workers' rights under the National Labor Relations Act (NLRA). This view gained support on June 13, 2024, when an Administrative Law Judge (ALJ) ruled that overly broad noncompete and nonsolicitation clauses create a "chilling effect" on employees' Section 7 rights, suggesting potential changes in how the NLRB treats these agreements.
However, an ALJ recently ruled an employer's noncompete was legal and did not violate Section 7. Permobil, Inc., a wheelchair manufacturer, took legal action in the U.S. District Court for the Middle District of Tennessee against a former employee for breaching the noncompete clause in his employment agreement. The noncompete barred him from working for competitors in the U.S. for one year. The agreement also included clauses preventing the disclosure of confidential information and disparagement of the company.
Abruzzo challenged the noncompete in a complaint filed with the board. She argued it infringed upon employees' Section 7 rights under the NLRA by restricting their ability to quit to pressure the employer into meeting demands. However, ALJ Robert Giannasi stated that, as written, Section 7 does not prohibit noncompete agreements, and protected activity does not include an employee voluntarily quitting to work for a competitor. The ALJ further noted that any impact on Section 7 rights was minimal and outweighed by the legitimate business reasons for the noncompete. The ALJ stated any attempt to change the law "is up to the Board, not me."
While this ruling suggests growing support for noncompetes, employers should be mindful that the Federal Trade Commission (FTC)'s ban against these agreements is still in the courts. After a Texas court ruled against the FTC's ban, citing limitations in the agency's statutory authority, the FTC appealed to the Fifth Circuit, asserting its right to enact rules banning most noncompetes as unfair competition. Nevertheless, it appears that noncompetes are still on the table.
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