NLRB Continues to Flex Its Muscles with Latest General Counsel Memorandum on Non-Competes
The NLRB GC has issued a memo stating most non-compete agreements violate Section 7 employee rights.
Employers can expect the NLRB’s litigation agenda to be aggressive in pursuing complaints challenging agreements that limit employee mobility.
State laws and further developments from the NLRB and the Federal Trade Commission on non-competes should be closely monitored.
In a not-so surprising move, the National Labor Relations Board’s General Counsel Jennifer Abruzzo issued a memo indicating she believes most non-competes violate the National Labor Relations Act and, in particular, Section 7 rights of employees. Previous to this General Counsel memo (hereinafter “GC”), the NLRB GC weighed in on non-disparagement and confidentiality clauses stating that maintenance and enforcement of those provisions were likewise unenforceable in virtually every circumstance. However, the NLRB appears to be jumping on the bandwagon for waning support for non-competes, particularly of rank and file employees. Many states have sought to significantly limit non-compete agreements and other states have pending legislation looking to follow suit.
Memorandum GC-23-08 — issued on May 30 — states that except in limited circumstances, “the proffer, maintenance and enforcement” of non-compete provisions violates the NLRA because these agreements “reasonably tend to chill employees” in their exercise of Section 7 rights. According to the NLRB press release on the GC memo, these agreements interfere with employees’ ability to: 1. concertedly threaten to resign to secure better working conditions; 2. carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions; 3. concertedly seek or accept employment with a local competitor to obtain better working conditions; 4. solicit their co-workers to work for a local competitor as part of a broader course of protected concerted activity; 5. seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace. Similar to the approach in the McLaren Macomb decision and related GC Memo 23-05, the GC finds it hard to articulate situations where a non-compete may not be violative of the NLRA. However, there is a tacit acknowledgment that non-competes curtailing interest in a managerial or ownership interest of a competitor may be justifiable, as well as “true independent contractor agreements.” Abruzzo also states there may be “special circumstances” that could justify a non-compete agreement, without providing specifics.
While this memorandum does not have the effect of law, it again demonstrates that the NLRB’s litigation agenda is going to continue to be aggressive in pursuing employers that have employees enter into agreements that challenge their mobility. However, if the Board would look to adopt the GC’s memo in its rulings, this would be significant overreach of the NLRB’s authority and would certainly be met with a legal challenge.
In addition to the NLRB, employers need to closely monitor the Federal Trade Commission and its previously announced focus on non-competes. These actions by the FTC and NLRB could be viewed as encouragement to state legislatures to continue to pass laws which restrict the ability of employers to impose post-employment restrictions on employees. While the GC’s memorandum is silent on the topic of non-solicitation agreements, this may be a further area of focus by the NLRB in the future.
Employers need to continue to be mindful of this ever-evolving area of the law as it pertains to non-competes. It would be prudent for businesses to review any and all restrictive covenant agreements with counsel to attempt to reduce risk in the enactment and enforcement of such provisions. Employers who have blanket non-competes for all employees may want to more closely tailor these agreements toward higher wage earners where a legitimate protectable business interest is clearly articulated for their use.
Should you have any questions about restrictive covenants or wish to have your current agreement reviewed by counsel, please reach out to Caroline J. Berdzik or any member of our Employment and Labor team.