On May 30, 2023, the General Counsel of the National Labor Relations Board (“NLRB”), Jennifer Abruzzo (“Ms. Abruzzo”), issued a Memorandum asserting that noncompete agreements violate the National Labor Relations Act (“NLRA”).
The crux of the Memorandum is that noncompetes may interfere with employees’ exercise of rights to engage in “concerted protected activity” under Section 7 of the NLRA, because they chill certain activity. The Memorandum is yet another attack on noncompetes by the federal government, following on the FTC’s proposed noncompete ban.
Rights protected by Section 7 of the NLRA
Section 7 protects employees’ “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.”
It is unlawful for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.
Generally, what types of policies may interfere with Section 7 rights?
The GC has urged the NLRB to adopt a standard that a provision in an employment agreement violates the NLRA if it reasonably tends to chill employees in the exercise of Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement on employee’s rights.
As an example, the NLRB recently issued a controversial decision in McLaren Macomb, ruling that employers violate the NLRA when they include confidentiality and non-disparagement clauses in severance agreements. The NLRB found that these specific clauses, although common in most severance agreements, are too broad and interfere with employees’ rights to engage in protected activity.
5 Ways the GC Claims Noncompetes chill employees’ rights
The GC claims that noncompetes are overbroad and reasonably tend to chill employees in the exercise of their Section 7 rights, when they could be construed by employees to deny them the ability to quit and find other employment. Specifically, the Memorandum provides the following reasons how noncompetes have a chilling effect and are unlawful.
- Noncompetes chill employees from concertedly threatening to resign to demand better working conditions.
- Noncompetes chill employees from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
- Noncompetes chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
- Noncompetes chill employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity.
- Noncompetes chill employees from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace. According to the GC, “they effectively limit employees from the kind of mobility required to be able to engage in some particular forms of this activity, such as union organizing, which may involve obtaining work with multiple employers in a specific trade and geographic region.”
Low Wage Earners are the Focus
It appears that the NLRB is focused on low-wage or middle wage workers “who lack access to trade secrets or other protectable interests, or in states where non-compete provisions are unenforceable.” Managerial or owners of a business, or true independent contractors are not covered by the NLRA and, therefore, the GC noted that noncompetes restricting these types of individuals could be lawful.
The Memorandum also states that there may be circumstances in which a narrowly tailored noncompete agreement’s infringement on employee rights is justified by special circumstances. Perhaps this is a silver-lining for employers, but, unfortunately, the Memorandum fails to provide an example or explain what would be such a special circumstance.
Caution: The NLRB will likely aggressively challenge noncompetes
Employers should view the Memorandum seriously. The GC has shown a pattern of aggressively pursuing issues it views as high priority. For example, we have seen the GC seek employment status for college athletes, challenge the legality of standard severance agreements, confidentiality clauses and non-disparagement clauses. Given that the NLRB previously signed a Memorandum of understanding with the FTC and the Department of Justice’s Antitrust Division, it is safe to conclude that noncompetes are a high priority and will be aggressively challenged.
Although the GC Memorandum is not law, it may indicate what cases the NLRB will pursue, how the Board would rule on these issues, and what other types of clauses it may target next. No doubt, the NLRB will also be carefully scrutinizing employee non-recruitment and non-disclosure covenants that it believes may chill Section 7 rights.
It would be prudent for employers to carefully audit/review noncompetes and other restrictive covenants that may limit employees’ rights to engage in protected activity under Section 7 of the NLRA. This is especially true given that the FTC is also seeking to nullify noncompetes.
It may be worth considering limiting noncompetes to high-wage earners or supervisory personnel who are not covered by the NLRA. Against this backdrop, employers should seek legal counsel when drafting restrictive covenants and before sending cease and desist letters to former employees who are violating covenants.