NLRB General Counsel Targets Employee Non-Competes under NLRA
Posted: June 1, 2023
On May 30, 2023, General Counsel (GC) Jennifer A. Abruzzo released Memorandum 23-08, Non-Compete Agreements that Violate the National Labor Relations Act (NLRA).
In the memorandum, Abruzzo urges the National Labor Relations Board (NLRB) to make new law declaring the proffer, maintenance, and enforcement of employee non-compete agreements by employers unlawful under the NLRA. Abruzzo's unprecedented foray into regulating non-competes follows the Federal Trade Commission's (FTC) recent controversial proposal to ban virtually all non-compete agreements with only limited exceptions.
Section 7 of the NLRA provides both unionized and non-unionized employees with 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." An employer violates Section 8(a)(1) of the Act if it interferes with, restrains, or coerces employees in the exercise of these Section 7 rights.
Abruzzo states in her memo that, with very limited exceptions, non-competes tend to "chill" employees in the exercise of Section 7 rights under the NLRA and that such agreements therefore violate Section 8(a)(1) of the Act. GC Abruzzo states that non-competes "chill" employees from engaging in five specific types of activity protected under Section 7:
- Concertedly threatening to resign to demand better working conditions.
- Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
- Concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
- Soliciting their co-workers to work for a local competitor as part of a broader course of protected concerted activity.
- Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer's workplace.
Abruzzo says she already authorized issuance of a complaint alleging the unlawful maintenance of a non-compete provision that impacted low-wage employees because "there was no evidence of a legitimate business interest justifying the provision." She expressly acknowledges, however, that non-competes restricting an individuals' managerial or ownership interest in a competing business and "true" independent-contractor relationships can be lawful. She also recognizes that a narrowly tailored non-compete may be justified by special circumstances. Just what circumstances would suffice in the GC's view is unclear, since the memo says they are unlikely to include training and investments in employees or protecting proprietary or trade secret information — all common reasons for employers to use non-competes. Abruzzo does not specify whether her denunciation of non-competes includes non-solicitation agreements, which employers commonly use with non-competes to protect their goodwill and customer relationships and their training and investment in their employees. The GC also does not address the tension between her position and the laws of numerous states that recognize an employer's right to protect proprietary information and customer goodwill through narrowly tailored non-competes.
Her latest memorandum continues Abruzzo's aggressive campaign to implement pro-labor policies that the Biden administration has been unable to accomplish through legislation such as the Protecting the Right to Organize (PRO) Act, which has not advanced in either chamber this term. Similarly, the proposed FTC rule banning non-competes was prompted by an Executive Order issued July 9, 2021 asking the FTC to ban or limit such agreements.
While Abruzzo's memorandum represents her opinion on how the NLRA should be interpreted, it is sharply at odds with the current state of the law. It is significant, however, because, as GC, Abruzzo makes initial decisions about whether to issue complaints, and employers can reasonably expect to see additional complaints filed by the NLRB based on unfair labor practice charges in which employees or unions claim a particular employer's non-compete violates the Act. By proclaiming that the Board has authority to outlaw employer agreements that have been legal since 1935, the GC seeks an unprecedented expansion of her and the Board's authority. If the Board adopts Abruzzo's position, it would certainly be challenged on appeal to the courts.
Neither the FTC's proposed rule nor Abruzzo's memorandum requires employers to take any immediate action. It would be prudent, however, for employers to review their current restrictive covenant agreements with employment counsel and consider whether there are reasonable ways to mitigate the potential impact of these legal developments.
Posted In: Executive Branch; National Labor Relations Act (NLRA); National Labor Relations Board (NLRB); Non-Compete Clause (Restrictive Covenant)
Want to know more? Read the full article by Tyler Sims, Melissa McDonagh, and Michelle Devlin at Littler Mendelson