NLRB General Counsel Says Non-Competes May Violate the NLRA

Yesterday, the National Labor Relations Board’s General Counsel issued a memorandum stating that non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act (NLRA) because such provisions interfere with employees’ ability to exercise their rights under Section 7 of the Act. That section gives employees the right to “self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” The memo opined that non-compete agreements are illegal because they “interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.”

According to NLRB General Counsel Jennifer Abruzzo, “Non-Compete provisions reasonably tend to chill employees in the exercise of Section 7 rights when the provisions could reasonably be construed by employees to deny them the ability to change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.”  In her view, non-compete agreements could theoretically interfere with an employee’s rights by limiting: (1) the employee’s ability to quit a job to secure better working conditions; (2) the employee’s ability to carry out concerted threats to resign or otherwise secure improved working conditions; (3) the employee’s ability to concertedly seek or accept employment with a local competitor or obtain better working conditions; (4) the employee’s ability to solicit her co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and (5) the employee’s ability to seek employment and, at least in part, to specifically engage in protected activity, including union organizing, with other workers.

The General Counsel’s memo further explained that provisions that clearly restrict only an individual’s managerial or ownership interests in a competing business or true independent-contractor relationships in some cases may be lawful. The memo additionally states that employers can protect legitimate business interests, such as proprietary interests or trade secrets, through use of “narrowly tailored workplace agreements that protect those interests.”

The memo concluded with the suggestion that the NLRB will seek to make whole those employees who can demonstrate that they lost opportunities for other employment due to unlawful maintenance of overly broad non-compete agreements.

While the GC’s memo did not address supervisory employees, prior NLRB decisions have concluded that Section 7 does not apply to supervisors or “supervisory employees” who use their own independent discretion and judgment to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action.

This is not the only recent challenge to non-compete provisions. The Federal Trade Commission proposed a rule in January 2023 that would declare almost all non-compete agreements as unreasonable methods of competition, in violation of the Fair Trade Act. The FTC accepted public comments on the proposed rule until April 19, 2023, after which it may consider modifying (or not) its position. If such a rule is enacted, it likely will be challenged in court.

Nemeth Bonnette Brouwer PC will continue to monitor changes in the law pertaining to non-competition provisions and updates from the NLRB and FTC on the issue. Feel free to contact any of the attorneys at the firm with your questions.