NLRB General Counsel Issues Memo Targeting Noncompete Agreements for Nonmanagerial and Nonsupervisory Employees
The National Labor Relations Board’s top lawyer, Jennifer Abruzzo, issued a General Counsel memo today instructing the Labor Board’s Regional Directors of her position that noncompete clauses for employees protected by the National Labor Relations Act (NLRA) (i.e., nonmanagerial and nonsupervisory employees) in employment contracts and severance agreements violate federal labor law except in limited circumstances. The memo, while not law, outlines her legal theory which she will present to the National Labor Relations Board, which makes law primarily through adjudication of unfair labor practice cases. The memo instructs the agency’s field offices of the position that the General Counsel is instructing them to take when investigating unfair labor practice charges claiming that such clauses interfere with employees’ rights under the NLRA.
In the memo, NLRB General Counsel Abruzzo states that “the proffer, maintenance, and enforcement of such agreements” violate the NLRA where they “reasonably tend to chill employees in the exercise” of their right under Section 7 of the NLRA to take collective action including organizing, to improve their terms and conditions of employment. Because General Counsel Abruzzo considers such provisions as tending to “cut off” an employee’s “access to other employment opportunities,” she asserts that they “chill employees from engaging in Section 7 activity because employees know that they will have greater difficulty replacing their income if they are discharged for exercising their statutory right to organize and act together to improve working conditions,” including in the context of seeking union representation and engaging in strikes.
Specifically, Abruzzo sets forth in the memo “five specific types of activity protected under Section 7 of the [NLRA]” that may be unlawfully restricted by subjecting an employee to a noncompete provision:
Concertedly threatening to resign to demand better working conditions: Abruzzo asserts in the memo that noncompete clauses dissuade employees from leveraging the threat of resignation in pursuing improved working conditions as such clauses effectively render these threats futile by preventing employees from obtaining new employment in the same field without the risk of legal liability.
Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions: While Abruzzo acknowledges that Section 7 of the NLRA does not expressly recognize the “right of employees to concertedly resign from employment,” she argues this right is implicit in the Act and unlawfully infringed upon when employees are subjected to noncompete clauses.
Concertedly seeking or accepting employment with a local competitor to obtain better working conditions: Abruzzo takes the position in the memo that “[s]uch protected activity would also include a lone employee’s acceptance of a job as a logical outgrowth of earlier protected concerted activity.”
Soliciting co-workers to work for a local competitor as part of a broader course of concerted activity. Abruzzo asserts that employees subject to noncompete clauses “cannot act on the solicitation without breaching such agreements” even though “retaliatory action for soliciting co-workers to breach their agreements…. would likely violate” the NLRA. Abruzzo’s logic here would also arguably apply to non-solicitation or no-poaching arrangements.
Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace. Abruzzo states in the memo her view that noncompete clauses “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.”
Abruzzo acknowledges that a narrowly tailored noncompete clause may be lawful, but only in certain circumstances such as where the provision restricts an individuals’ managerial or ownership interest in a competing business or in connection with true independent-contractor relationships. But in Abruzzo’s view “a desire to avoid competition from a former employee is not a legitimate business interest that could support” subjecting an employee to a noncompete clause. That is, of course, the law in the 47 states which permit noncompetes, as all such states permit usage of noncompetes only to protect a legitimate business interest, and not to avoid fair competition. (As we recently reported, the number of states permitting noncompete will soon drop to 46, as the Governor of Minnesota just signed a bill rendering void and unenforceable noncompetes signed on or after July 1, 2023.)
It is also very important to note that supervisory employees as defined by the NLRA and managerial employees under the NLRB’s definition of that term are not protected by the NLRA, and so noncompete provisions, like non-disparagement and confidentiality provisions in managerial and supervisory severance and employment agreements, are not subject to this proposed interpretation of the NLRA.
The memo represents one of the most aggressive steps taken by the NLRB’s General Counsel to restrict the use of noncompetes since the agency entered into a partnership agreement with the FTC last year to share information and collaborate. The FTC has been working on its own rule on noncompetes, which, as we previously reported, is delayed until at least April 2024 after receiving intense opposition from industry groups.
Employers should also be aware that the position articulated by Abruzzo regarding the legality of noncompete clauses under the NLRA has not yet been adopted by the NLRB, although a similar standard is currently being considered by the Board in connection with the Stericycle Inc. cases referenced in the memo. Abruzzo will bring test cases before the Board, which will ultimately determine whether the proffer, maintenance, and/or enforcement of such agreements violates the Act. Any such NLRB decision may then be subject to Circuit Court and Supreme Court review. At the very least, the memo underscores the seriousness of interagency efforts to outlaw noncompetes even if such provisions remain viable for now.