First confidentiality and non-disparagement provisions in severance agreements were declared unlawful, and now Jennifer Abruzzo, General Counsel for the National Labor Relations Board, has taken the same view of most non-compete agreements.
On May 30, 2023, the General Counsel issued an advisory memo detailing her view that non-compete provisions in employment contracts “interfere with employees’ exercise of rights under Section 7 of the National Labor Relations Act (the Act or NLRA).” The General Counsel concluded, “except in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1) of the Act.” Memorandum GC 23-08. This announcement affects union and nonunion workplaces alike, but it does not apply to workers who are not “employees” under the Act, which means, for example, the announcement should not apply to non-competes with managerial or supervisory employees.
Section 7 of the Act protects employee rights to take collective action to improve working conditions. The law provides that workers have 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.” It is an unfair labor practice, in violation of Section 8(a)(1) of the Act, for an employer to interfere with these rights.
According to the General Counsel, non-competes are usually unlawful because they “reasonably tend to chill employees in the exercise of Section 7 rights, when the provisions could be reasonably 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 General Counsel continued, “[t]his denial of access to employment opportunities interferes with workers engaging in Section 7 activity in a number of ways—for example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”
The General Counsel identified five types of protected activity that are chilled by non-competes in employment agreements: (1) concertedly threatening to resign to demand better working conditions; (2) carrying out concerted threats to resign; (3) concertedly seeking or accepting employment with a local competitor to obtain better working conditions; (4) soliciting coworkers or former coworkers to work for a local competitor as part of a broader course of protected, concerted activity; and (5) seeking employment with an employer to engage in protected activity (e.g., union organizing) with other workers at the employer’s workplace.
In the General Counsel’s opinion, the only exception to her standard would be “provisions that clearly restrict only an individuals’ managerial or ownership interests in a competing business, or [agreements involving] true independent contractor relationships.” While the memo also advised there may be some other “special circumstances” that justify an infringement on employee’s Section 7 rights, the General Counsel did not explain what those circumstances may be.
The National Labor Relations Board itself has not adopted the General Counsel’s new stance on non-competes, but employers who ask employees to sign non-competes, or those who seek to enforce non-competes, could receive an unfair labor practice charge in response. The General Counsel’s announcement follows other actions disfavoring non-competes, including some states taking action to prohibit or limit non-competes and the Federal Trade Commission’s January 2023 announcement of a proposed rule that would ban most non-competes as an unfair method of competition under Section 5 of the Federal Trade Commission Act.