NLRB General Counsel seeks to expand board authority into the noncompete realm

A mere two months after asserting the invalidity of confidentiality and non-disparagement provisions in severance agreements, the General Counsel (GC) for the National Labor Relations Board (NLRB or the Board) Jennifer Abruzzo has issued another wake-up call to employers. In Memorandum GC 23‑08, GC Abruzzo asserts that certain non-compete provisions in employment-related agreements violate the National Labor Relations Act (NLRA).

Fortunately, GC memoranda are not binding – they merely reflect the General Counsel’s interpretation of the law and do not represent the views of the Board or federal appellate courts, which ultimately decide the legality of the conduct or contractual provisions at issue.

Nevertheless, against a backdrop of the Federal Trade Commission’s (FTC) effort to ban non-competes and recent legislative efforts to restrict the use of such agreements, employers nationwide must remain vigilant to protect the enforceability of non-competes in their employment agreements.

Background

Broadly speaking, the NLRA established the right of employees to act collectively to improve terms and conditions of employment, with or without labor unions. By the same token, the NLRA prohibits employers from interfering with the employees’ exercise of the right to engage in these concerted activities. The Board enforces the NLRA, and the NLRB’s GC is charged with prosecuting violations of the NLRA before the Board. 

GC Memo 23-08

On May 30, 2023, GC Abruzzo issued a memorandum asserting that non-compete agreements tend to chill employees’ rights under Section 7 of the NLRA because employees could reasonably construe such agreements “to deny them the ability to quit or change jobs.” More specifically, GC Abruzzo opines that non-competes discourage employees from engaging in at least five types of activities protected under Section 7, including:

1. Threatening to resign as a group to demand better working conditions
2. Resigning as a group to demand better working conditions
3. Seeking or accepting employment with a local competitor as a group to obtain better working conditions
4. Soliciting co-workers to work for a local competitor as part of a broader course of protected concerted activity, and
5. Seeking employment at another employer to engage in unionization or other protected concerted activity.

Given GC Abruzzo’s opinion on non-competes, she recently asked the Board to adopt a new standard that would render any non-compete unlawful “unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights.” According to GC Abruzzo, “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.” In addition, “business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad non-compete provision because U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus.” Similarly, as specifically stated in the memo, the standard would render unlawful non-competes imposed on low or middle-wage employees who lack access to trade secrets or proprietary interests. 

GC Abruzzo acknowledged that narrowly tailored workplace agreements that protect an employers’ legitimate business interest in protecting proprietary or trade secret information may not run afoul of the NLRA. Similarly, some non-competes may not violate the Act where the non-compete only restricts the employee’s managerial or ownership interests in a competing business, or in the case of genuine independent contractor relationships. 

Potential implications for employers

The Board has not ruled on the question, so no laws have changed as of this alert. That said, it is not hard to read the tea leaves – it is probable that the current Biden-appointed Board with a 3-1 Democratic majority will adopt GC Abruzzo’s proposed standard. Over the last five months, President Biden’s administration actively has sought to broaden employee rights. From the FTC’s proposed rule to ban non-competes and the Department of Justice's antitrust enforcement initiatives to the NLRB’s decision in McLaren Macomb, federal agencies are targeting restrictive covenants that limit employee mobility.

Even if the Board adopts Abruzzo’s proposed standard, the decision would only apply to employees covered under the NLRA. Accordingly, non-competes presented to executives, managers, supervisors, and independent contractors would remain lawful. Moreover, little would change in states already subject to non-compete bans, such as California; Oklahoma; North Dakota; Washington, DC; and, most recently, Minnesota.

If you have questions about developments related to restrictive covenants and the best approach for your business, please contact any of the authors or your DLA Piper relationship attorney.