NLRB Says Non-Compete Agreements Violate NLRA; FTC Delays Enforcement of Non-Compete Ban
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APPLIES TO All Employers with Employees subject to NLRA |
EFFECTIVE As Indicated
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Discussion
On May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued a memorandum (Memo) stating that the proffer, maintenance, and enforcement of non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act (NLRA). This Memo parallels her earlier Memorandum (GC 23-05) addressing confidentiality in the context of severance agreements.
In the Memo, Abruzzo explains that overbroad non-compete agreements are unlawful because they chill the exercise of employee rights under Section 7 of the NLRA, which protects their right to take collective action to improve their working conditions. Abruzzo specifically notes that non-compete provisions “could reasonably 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.”
The Memo outlines some limited exceptions where non-compete agreements could be lawful, including situations where the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business or true independent contractor relationships. In such limited situations, Abruzzo explains that non-compete agreements should be narrowly tailored to the special circumstances, to justify the infringement on employee rights. She emphasizes that neither an employer’s desire to avoid competition from a former employee, nor an employer’s interest in retaining special investments made in training employees constitute a legitimate business interest that could support such special circumstances.
Memorandums issued by the NLRB’s General Counsel are intended to provide policy guidance and agency interpretation of certain legal principles. While these memorandums do not constitute legally binding authority on employers, such guidance reflects the NLRB’s aggressive posture towards certain employment agreements that could be interpreted as interfering with Section 7 rights.
The NLRB Memo comes on the heels of a report that the Federal Trade Commission (FTC) is not expected to vote on its non-compete ban until April 2024. We previously reported that in January 2023 the FTC proposed a ban on non-competes, stating that they are an unfair method of competition and are in violation of Section 5 of the Federal Trade Commission Act. Because of the large response to the proposed rule, the agency needs sufficient time to review the 27,000 comments and make any proposed adjustments to the rule.
With the convergence of these two timelines, what should employers do now? Employers are advised to review noncompete agreements with legal counsel. Employers should take stock of their non-compete agreements and determine whether adjustments need to be made for existing agreements and to onboarding procedures going forward.
Action Items
- Review and revise non-compete agreements with legal counsel to ensure language does not interfere with employee rights under the NLRA.
- Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.
Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2023 ManagEase