Labor & Employment News Alert

Why Your Non-Compete Agreement May Violate the National Labor Relations Act

June 13, 2023

By: Chad J. Sullivan, Lucero Tennis Kieffer, Abraham Lamptey, and Lukus Rickelman

Jennifer A. Abruzzo, the General Counsel (“GC”) of the National Labor Relations Board (“NLRB”), has expanded her view that the requirement and enforcement of non-compete provisions in employment contracts and severance agreements generally violate the National Labor Relations Act (the “Act”). On May 30, 2023, the GC addressed a memorandum to all Regional Directors, Officers-in-Charge, and Resident Officers of the NLRB in which she explained that generalized non-compete agreements infringe on employees’ rights. In the memo, the GC outlined four distinct areas in which non-compete agreements may violate the Act. The GC also emphasized her commitment to interagency collaborations with agencies like the Federal Trade Commission (“FTC”) and the Department of Justice’s Antitrust Division to eliminate restrictions on employee rights.

Overbroad Non-Compete Agreements are Potentially Unlawful

First, the GC states that overbroad non-compete agreements discourage employees from concertedly threatening to resign unless work conditions improve because the non-compete restricts the employees’ access to other potential employers. Further, employees threatening to resign may fear legal retaliation for their breach of a signed agreement. Even if employees concertedly threaten to resign, they are chilled from doing so for the same reasons.

Second, the GC makes note that generalized non-compete agreements suppress concerted efforts of employees from seeking and/or accepting employment with a local competitor to obtain better working conditions. Employees would be discouraged from this type of activity because their non-compete agreements would bar them from working with local competitors. The GC further argues that the fear of being out of a job and the inability to seek future employment in the area bars many employees from seeking or accepting employment with companies providing improved working conditions.

Third, the GC states that nonspecific non-compete agreements discourage employees from encouraging coworkers to work for local competitors. Because employees generally cannot act on this solicitation without breaching their non-compete agreements and because potential solicitors could reasonably fear legal retaliation, the agreements chill employees from soliciting outside work to their coworkers. Not only are the employees chilled from breaching their own non-compete, but local competitors may not accept/entertain employment opportunities from larger competitors in fear of legal action.

Lastly, the GC claims that ambiguous non-compete agreements chill employees from seeking employment because it limits their right to engage in the organization of a union.

Potentially Lawful Non-Compete Agreements

The GC, however, concedes that not all non-compete agreements unjustifiably violate employees’ rights. In the memo, the GC explains that non-competes restricting only managerial or ownership interests, or true independent contractor relationships do not necessarily violate the Act.

Employers subject to the Act should, therefore, confer with counsel on the legitimacy of non-compete agreements considering the new NLRB approach. Although the GC’s memo is not binding law, it indicates the NLRB’s posture toward prosecuting or adjudicating non-compete agreement disputes now and in the near future.