NLRB General Counsel Targets Employee Noncompetes

The following article first appeared in the News & Analysis section of Littler’s website. It is reposted here with permission.

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On May 30, 2023, National Labor Relations Board general counsel Jennifer Abruzzo released Memorandum 23-08, Noncompete Agreements that Violate the National Labor Relations Act.

In the memorandum, Abruzzo urges the NLRB to make new law declaring the proffer, maintenance, and enforcement of employee noncompete agreements by employers unlawful under the NLRA.

Abruzzo’s unprecedented foray into regulating noncompetes follows the Federal Trade Commission’s recent controversial proposal to ban virtually all noncompete agreements with only limited exceptions.   

Section 7 of the NLRA provides both unionized and non-unionized employees with 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.”

An employer violates Section 8(a)(1) of the act if it interferes with, restrains, or coerces employees in the exercise of these Section 7 rights.  

Protected Activity Claims

Abruzzo states in her memo that, with very limited exceptions, noncompetes tend to “chill” employees in the exercise of Section 7 rights under the NLRA and that such agreements therefore violate Section 8(a)(1) of the act.

She states that noncompetes  “chill” employees from engaging in five specific types of activity protected under Section 7:

1. Concertedly threatening to resign to demand better working conditions.
2. Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
3. Concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
4. Soliciting their co-workers to work for a local competitor as part of a broader course of protected concerted activity.
5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.

Lack of Clarity

Abruzzo says she already authorized issuance of a complaint alleging the unlawful maintenance of a noncompete provision that impacted low-wage employees because “there was no evidence of a legitimate business interest justifying the provision.”

She expressly acknowledges, however, that noncompetes restricting an individuals’ managerial or ownership interest in a competing business and “true” independent-contractor relationships can be lawful.

She also recognizes that a narrowly tailored noncompete may be justified by special circumstances.

Abruzzo recognizes that a narrowly tailored noncompete may be justified by special circumstances.

Just what circumstances would suffice in Abruzzo’s view is unclear, since the memo says they are unlikely to include training and investments in employees or protecting proprietary or trade secret information—all common reasons for employers to use noncompetes.

Abruzzo does not specify whether her denunciation of noncompetes includes non-solicitation agreements, which employers commonly use with noncompetes to protect their goodwill and customer relationships and their training and investment in their employees.

She also does not address the tension between her position and the laws of numerous states that recognize an employer’s right to protect proprietary information and customer goodwill through narrowly tailored noncompetes.

Aggressive Campaign

Her latest memorandum continues Abruzzo’s aggressive campaign to implement pro-labor policies that the Biden administration has been unable to accomplish through legislation such as the Protecting the Right to Organize Act, which has not advanced in either chamber this term.

Similarly, the proposed FTC rule banning noncompetes was prompted by an executive order issued July 9, 2021 asking the FTC to ban or limit such agreements.

While Abruzzo’s memorandum represents her opinion on how the NLRA should be interpreted, it is sharply at odds with the current state of the law.

It is significant, however, because, as GC, Abruzzo makes initial decisions about whether to issue complaints, and employers can reasonably expect to see additional complaints filed by the NLRB based on unfair labor practice charges in which employees or unions claim a particular employer’s noncompete violates the act.

If the board adopts Abruzzo’s position, it would certainly be challenged on appeal to the courts.

By proclaiming that the board has authority to outlaw employer agreements that have been legal since 1935, the GC seeks an unprecedented expansion of her and the board’s authority.

If the board adopts Abruzzo’s position, it would certainly be challenged on appeal to the courts.

Neither the FTC’s proposed rule nor Abruzzo’s memorandum requires employers to take any immediate action. 

It would be prudent, however, for employers to review their current restrictive covenant agreements with employment counsel and consider whether there are reasonable ways to mitigate the potential impact of these legal developments.

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About the authors: Tyler Sims is an associate with Littler and advises and represents employers in all areas of labor and employment law. Melissa McDonagh is a shareholder with Littler and co-chair of the firm’s Unfair Competition and Trade Secrets Practice Group. Michelle Devlin is a knowledge management counsel with Littler and represents management in labor and employment law matters.