NLRB General Counsel Adds Non-Competes to Growing List of Restrictive Covenants That Violate the National Labor Relations Act

On May 30, 2023, the General Counsel of the National Labor Relations Board, Jennifer Abruzzo, issued a memorandum stating broadly that the proffer, maintenance, and enforcement of non-compete agreements between employers and employees tend to infringe on employees’ exercise of rights under Section 7 of the National Labor Relations Act (the “Act”). General Counsel Abruzzo opines that non-competes are therefore unlawful under the Act (as to non-supervisory employees), unless “narrowly tailored” to a special circumstance justifying the infringement on employee rights. This memorandum comes on the heels of her prior memo, taking the position that confidentiality and non-disparagement provisions in employee severance agreements are invalid, as Crowell reported in late March.

General Counsel Abruzzo’s memo takes the position that overbroad non-competes are unlawful because they chill employees from exercising Section 7 rights. By way of reminder, Section 7 protects employees’ rights to take collective action to improve their working conditions. General Counsel Abruzzo explained that non-competes “chill” employees from engaging in the following types of Section 7 activity:

(1) Concertedly threatening to resign to demand better working conditions. The General Counsel states that employees may view these threats as futile if they have lack of access to other employment opportunities, and fear retaliatory legal action.

(2) Carrying out concerted threats to resign or concertedly resigning to secure improved working conditions.

(3) Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;

(4) Soliciting co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and

(5) Seeking employment to specifically engage in protected activity with other workers at an employer’s workplace. In other words, they limit employees in, for example, union organizing.

Based on the foregoing, General Counsel Abruzzo opines that business interests in retaining employees are unlikely to justify overbroad non-competes. The General Counsel acknowledges that a “narrowly tailored” non-compete would be permissible if justified by special circumstances – i.e., (1) when the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business; (2) when they pertain to true independent contractor relationships; and (3) when they are narrowly tailored to protect proprietary trade secret information. General Counsel Abruzzo states that there may be circumstances in which a narrowly tailored non-compete’s infringement on employee rights is justified by special circumstances, but does not provide any such examples. She does note, however, that “special circumstances” do not include “a desire to avoid competition from a former employee,” and that the NLRB will take the view that non-competes are most likely to be impermissible when imposed on low or middle-wage workers, or in states where non-competes are unenforceable.

This memorandum follows recent efforts by other federal agencies to restrict non-compete provisions, including the Federal Trade Commission’s proposed rule to retroactively ban nearly all non-compete provisions. The FTC’s rule has not yet been enacted, and General Counsel Abruzzo’s memorandum does not create binding or precedential law. Rather, the memorandum directs NLRB regional directors to submit cases involving arguably unlawful non-compete agreements to the NLRB’s Division of Advice. Accordingly, it remains to be seen if the NLRB will bring cases to invalidate non-competes.  There is also the open question as to how many employers seek to impose non-competes on non-supervisory employees, including rank-and-file employees, in the first place.

In any event, as suggested in response to the FTC’s proposed rule, employers should review their non-compete provisions to ensure they are as narrowly tailored as possible, and consider applying them only to managerial-level employees rather than mid- or low-wage employees. Employers should also be sure that their agreements comply with state and local laws, which may already have limitations or prohibitions on non-compete provisions in place. Crowell & Moring can help you determine whether your non-compete agreement is narrowly tailored, and will continue to monitor these issues as they develop.