On May 30, 2023, General Counsel to the National Labor Relations Board (“NLRB”) issued a memorandum (“Memo”) informing its regional offices of the agency’s current stance on the enforceability of employee non-competition agreements. In brief, the NLRB’s position is that most non-competes imposed against non-supervisory employees violate the National Labor Relations Act (“NLRA”). The Memo is the latest effort by the Federal Government to curb employers’ reliance on non-competes following the Federal Trade Commission’s proposed ban of these clauses earlier this year.
The NLRB’s Reach
The NLRB is an independent federal agency created to enforce the NLRA. It has regional offices throughout the country.
Employees who believe their rights under the NLRA were violated have no private right of action—meaning they cannot sue their employer in court for those violations. Their only recourse is to file a charge with one of the NLRB’s regional offices, which in turn will investigate and issue an administrative complaint to the employer if warranted. Accordingly, the Memo is not a basis for an employee to sue over a non-compete but is an indication of whether and how the NLRB will prosecute charges filed with the agency concerning such agreements.
How Non-Competes Implicate the NLRA
With limited exceptions, the NLRA protects all employees other than government workers, agricultural laborers, independent contractors and supervisors.
Section 7 of the NLRA guarantees most private sector employees the right to join together, informally or by unionizing, to make concerted efforts to promote their interests in the workplace. Those interests might concern, among other things, wages, schedules and other working conditions.
Generally speaking, Section 8 of the NLRA prohibits employers and labor unions from impinging on employees’ exercise of their rights under Section 7. For example, employers cannot restrict employees’ rights to gather and discuss the terms and conditions of their employment and to take collective action to improve those conditions.
The lynchpin in the NLRB’s authority to police non-competes is the impact these provisions have on employees’ exercise of their Section 7 rights. If there is no impact, the NLRB has no authority to regulate non-competition clauses. The Memo’s entire purpose is to explain how and why there is such an impact to justify the NLRB’s intercession into this space.
According to the NLRB’s General Counsel, a non-competition clause violates the NLRA “if it reasonably tends to chill employees in the exercise of Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights.” A provision will have this chilling effect where it “could reasonably be 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 Memo identifies several specific types of protected activities that non-compete clauses may discourage employees from undertaking. Specifically:
- They discourage employees from “concertedly threatening to resign,” and from carrying out such threats, as a means of persuading an employer to improve working conditions. This is because employees may feel unable to quit if bound by a non-compete that would prevent them from accepting other employment.
- They chill employees from “concertedly seeking or accepting employment” with a competitor offering better working conditions, since doing so might expose the employees to litigation over alleged breaches of their non-competes.
- They dissuade employees from seeking employment for the purpose of engaging in protected activities at an employer’s workplace. As to this activity, General Counsel cites a prior NLRB decision involving an employer’s refusal to hire certain applicants who intended to unionize.
The Memo goes on to address the types of “special circumstances” that might warrant the imposition of a non-compete. It states that an employer’s “desire to avoid competition from a former employee,” to “retain employees” or to protect “special investments in training” do not qualify as special circumstances, though an employer’s interest in protecting trade secrets might be sufficient if the non-compete is narrowly tailored. Nevertheless, the Memo cautions that, in most common situations, overbroad non-competes imposed on low and middle-wage workers are unlawful.
The Memo concludes by encouraging the NLRB’s regional offices to bring cases involving non-compete provisions that are “arguably unlawful” or concerning “arguably meritorious special circumstances defenses.” It also recommends that regional offices seek damages for employees who lost opportunities for employment because of overbroad non-compete provisions, even where the employer did not take any steps to enforce it.
The tide continues to turn against the inclusion of non-competition provisions in most employment agreements. Before presenting an agreement containing such a provision to an employee, employers should consider whether the circumstances truly warrant concerns about the employee’s future competition and whether the employer is prepared to defend its actions if brought before the NLRB. In this regard, it is not enough for an employer to simply withdraw a non-competition provision if it ever becomes a problem down the road—the Memo makes clear that even asking an employee to agree to such a term is unlawful.
For questions concerning non-competition agreements or the NLRB’s recent Memo, please contact Jessica M. Baquet at firstname.lastname@example.org or (516) 663-6506.