Following the Federal Trade Commission’s proposed near-total ban on non-compete agreements, which we wrote about here, and an increasing number of state laws limiting or banning such agreements, another federal agency official is piling on. On May 30, 2023, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memo expressing her position that noncompete agreements violate the National Labor Relations Act (NLRA). Specifically, GC Abruzzo asserts that noncompete agreements chill employees’ exercise of rights guaranteed by Section 7 of the NLRA unless the noncompete agreement is “narrowly tailored to address special circumstances” that justify the interference with employees’ Section 7 rights. Absent narrow tailoring to address special circumstances, GC Abruzzo contends that proffering, maintaining, or enforcing noncompete agreements violates the NLRA.
GC Abruzzo reasoned that noncompete agreements are often unlawfully overbroad. Specifically, where a noncompete agreement could be reasonably construed by employees to deny them the ability to quit or change jobs by restricting access to other employment opportunities, employees are less likely to engage in activities protected by the NLRA. GC Abruzzo cited five specific types of activity protected by Section 7 of the NLRA that are chilled by noncompete agreements:
- Employees’ right to threaten resignation to demand better working conditions.
- Employees’ right to carry out concerted threats to resign or concertedly resigning to secure improved working conditions elsewhere.
- Employees’ right to concertedly seek or accept employment with a local competitor to obtain better working conditions.
- Employees’ right to solicit coworkers to work for a local competitor as part of a broader course of protected concerted activity.
- Employees’ right to seek employment to specifically engage in protected activities, including the ability to obtain work with several employers in a specific trade and geographic region (e.g., union salting).
GC Abruzzo addressed and rejected several likely employer justifications concerning the need for noncompete agreements. For instance, employee retention or protecting investments in training employees will likely never justify an overbroad noncompete agreement. GC Abruzzo continued that such interests can be protected by less restrictive means, including offering employees’ a longevity bonus. In addition, GC Abruzzo noted that an employer’s desire to avoid competition is not a legitimate business interest.
But not all noncompete agreements will run afoul of the NLRA. Noncompete agreements that are narrowly tailored to protect proprietary or trade secret information will remain lawful. Further, GC Abruzzo wrote that noncompete agreements limiting only an individual’s managerial or ownership interests in a competing business would not be construed as prohibiting the individual from accepting other employment, and would therefore not violate the NLRA. Lastly, this memo does not impact noncompete agreements entered into with managers and supervisors.
GC Abruzzo directed Regional Offices to submit to her office cases involving noncompete provisions that are “arguably unlawful” under her analysis. If a noncompete agreement is ultimately found unlawful, Regional Offices are directed to seek make-whole relief that includes compensation lost as a result of lost opportunities for other employment – even if the employer did not attempt to enforce the noncompete agreement.
For now, GC Abruzzo’s memo is simply guidance concerning her position regarding noncompete agreements, and is not yet law. But employers may wish to review noncompete agreements entered into with employees to ensure they are narrowly tailored and supported by a legitimate business interest. As always, we will update you regarding developments in this area.