Non-Competes Under Attack Again: NLRB’s General Counsel Says Non-Compete Agreements Violate the NLRA

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On Tuesday, May 30, 2023, Jennifer Abruzzo, NLRB General Counsel, issued a Memorandum opining that except in limited circumstances, the proffer, maintenance, and enforcement of non-compete agreements interferes with employees’ exercise of rights under Section 7 of the National Labor Relations Act (the Act or the NLRA) and violate Section 8(a)(1) of the Act. Although not binding precedent in and of itself, the memorandum indicates that the NLRB will focus on pursuing enforcement actions against employers who utilize non-compete agreements that allegedly violate the NLRA, including those found in employment agreements and those in severance agreements.

Explaining the basis for her memorandum and directive, Abruzzo contends that non-compete provisions are overbroad and tend to chill employees’ exercise of Section 7 rights when those provisions reasonably could be construed by employees to deny them the ability to quit or 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. Abruzzo reasons that the lack of employment mobility created by non-competes chills employees from engaging in the following actions to demand or obtain better working conditions or to engage in protected activity with other workers at an employee’s workplace: (1) concertedly threatening to resign; (2) following through on concerted threats to resign; (3) concertedly seeking or accepting employment with a local competitor; (4) soliciting co-workers to go to work for a competitor; (5) seeking alternative employment, at least in part, to specifically engage in protective activity with other workers at an employer’s workplace. Although Abruzzo recognizes that current Board law does not unequivocally recognize a Section 7 right of employees to concertedly resign from employment, she indicates an intent to urge the Board to recognize such a right and limit or overrule prior decisions inconsistent with such recognition.

Abruzzo purportedly recognizes limited situations in which non-compete agreements would not violate the Act, such as when they are narrowly tailored to special circumstances justifying the infringement on employee rights, such as provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent contractor relationships. Abruzzo also cites to authority explaining that post-employment restraints on competition may be justified based on legitimate interests in protecting against the appropriation of valuable trade information and customer relationships. However, Abruzzo’s memorandum indicates that such allowable agreements do not—or in Abruzzo’s opinion would not—include: (1) agreements based only on a desire to avoid competition from former employees; (2) agreements based merely on business interests in retaining employees; and (3) agreements based on protecting special investments in training employees.  Abruzzo also targets non-compete provisions directed to low-wage and middle-wage workers as overly broad and in violation of the Act.

In the memorandum, Abruzzo notes having authorized the issuance of a complaint against an unnamed employer alleging unlawful maintenance of an overbroad non-compete provision to which the employer had subjected low-wage workers.  She calls for NLRB Regional Directors, Officers-in-Charge, and Resident Officers to submit for review and possible enforcement actions any cases involving arguably unlawful non-compete agreements, to be on the lookout for non-compete provisions that should be referred to the Federal Trade Commission or Department of Justice’s Antitrust Division for enforcement actions based on their recent initiatives surrounding non-compete agreements, and to seek damages for employees who can demonstrate that they lost opportunities for employment based on an employer’s maintenance of an allegedly unlawful non-compete provision.

It is not clear whether the memorandum’s guidance is intended to apply to customer non-solicitation agreements. A prior March 22, 2023 memorandum issued by Abruzzo that provides guidance regarding the application of the NLRB’s recent McLaren Macomb decision separately references non-compete clauses, no solicitation clauses, and no poaching clauses as provisions of severance agreements that could arguably interfere with employees’ exercise of Section 7 rights, which suggests that the NLRB might view such provisions independently. Despite that, the May 30, 2023 memorandum does not expressly indicate whether it applies to no solicitation clauses and no poaching clauses, and it does suggest that the NLRB views soliciting co-workers to go work for a competitor as potentially being a protected activity under the NLRA. Also, the new rule banning non-competes proposed by the FTC in January 2023 stated that other restrictive covenants that amount to a non-compete agreement likewise are prohibited, so the NLRB may very well adopt similar reasoning here.

The extent and impact of the memorandum’s guidance will be revealed through future enforcement actions, but it is clear that the NLRB, the FTC, and the DOJ continue to target post-employment restrictive covenants. Employers should take a careful look at their agreements to ensure that all such restrictions are justifiable based on a legitimate protectable interest, reasonable in scope and duration, and utilized only with appropriate employees. The most obvious take-aways are that employers should avoid utilizing non-competes broadly across their entire workforce; they should especially avoid using them altogether with lower wage and blue collar workers; and they also should be thoughtful about every employee that they require to sign such an agreement, making sure that that they only require employees who possess true protectable interests to sign them.