Client Alerts  - Labor and Employment Jun 12, 2023

Employers Beware: The NLRB Cometh for Your Non-Compete Agreements

Pen on paper with non compete contract text on clipboard

NLRB Position on Non-Compete Agreements

On May 30, 2023, the General Counsel of the National Labor Relations Board (NLRB), Jennifer A. Abruzzo, issued a memo setting forth her view that, except in limited circumstances, the proffer, maintenance and enforcement of non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act (NLRA). In doing so, the General Counsel joins the Federal Trade Commission’s recent announcement that it plans on adopting a rule in 2024 banning non-compete agreement contracts. The General Counsel’s announcement on non-compete agreements also follows the NLRB’s recent decision holding that overly broad confidentiality and non-disparagement clauses in severance agreements violate the NLRA.

In seeking to ban non-compete agreements, the General Counsel states in the memo that non-compete agreements are illegal because they tend to “chill employees in the exercise of Section 7 rights” under the NLRA, which permits employees to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. Specifically, the General Counsel asserts that non-compete agreements interfere with employees’ ability to engage in the following types of concerted activity protected under Section 7 of the NLRA:

  • Threatening to resign to demand better working conditions.
  • Carrying out concerted threats to resign or otherwise concertedly resign to secure improved working conditions.
  • Seeking or accepting employment with a local competitor to obtain better working conditions.
  • Soliciting co-workers to go work for a local competitor as part of a broad course of protected concerted activity.
  • Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.

The memo also states that business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad non-compete provision. The General Counsel stated that “U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus.”

Limited Legality of Non-Competes

The General Counsel further noted that the limited circumstances under which a non-compete clause would be legal include cases where the “provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships” or “a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.”

The General Counsel’s position does not have the effect of law. Rather, the General Counsel’s position would only become law if the NLRB issued a decision or rule adopting it. However, the memo does announce that when presented with an unfair labor practice charge challenging the validity of a non-compete agreement, the General Counsel will file a complaint seeking to invalidate the agreement and have the employee made whole for all damages he or she may have suffered.

Like the NLRB’s decision declaring overly broad confidentiality and non-disparagement clauses in severance agreements to be illegal, the General Counsel’s position regarding non-compete agreements does not apply to employees who qualify as supervisors under the NLRA. To qualify as a supervisor under the NLRA, an employee must have authority, among other things, to hire, fire, assign, suspend, discipline, adjust grievances or effectively recommend such action. Merely being an administrative or professional employee exempt from overtime does not automatically qualify an employee as a supervisor under the NLRA.

Impact to Unionized and Non-Unionized Employers

The General Counsel’s announcement applies to both unionized and non-unionized employers. Thus, all employers seeking to enforce non-compete agreements now face the prospect of litigation with the NLRB when seeking to enforce them against non-supervisory employees. Accordingly, employers should review their non-compete agreements and the supervisory status (as defined under the NLRA) of the employees who have signed them to determine if they may be susceptible to being invalidated by the NLRB and, if so, consider implementing other means to protect their legitimate interests.

Additional Assistance

Our attorneys remain ready to provide advice and guidance on complying with this new policy or any other workplace issues. For further assistance, please contact any of the attorneys on our Labor and Employment Practice Team or the Phillips Lytle attorney with whom you have a relationship.

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