In a shot across the bow to U.S. businesses, National Labor Relations Board (NLRB) General Counsel (GC) Jennifer Abruzzo recently issued a memo to all NLRB Regional Directors, Officers-in-Charge, and Resident officers making clear her view that “the proffer, maintenance, and enforcement” of non-compete provisions in employment agreements violate the National Labor Relations Act (NLRA), e]xcept in “limited circumstances.” Under the NLRA, it is unlawful for employers to interfere with, restrain, or coerce employees in the exercise of their “right to self-organization, to form, join, or assist labor organizations, or to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.
What is the GC’s Problem with Employer Noncompetes?
Employer noncompetes are contractual terms and conditions that prohibit employees from accepting certain types of jobs and operating certain types of businesses at the end of their employment. Why do they violate the NLRA? According to Abruzzo, noncompetes “reasonably tend[] to chill employees in the exercise of their rights under Section 7 of the NLRA to engage in “concerted activities for the purpose of collective bargaining for better working conditions where they work or leaving their job for a better one elsewhere, thereby improperly interfering with employee rights under Section 7 of the NLRA.
What are the “limited circumstances” that Might Justify an Employer’s Use of a Noncompete?
Noncompete agreements that restrict only an individual’s managerial or ownership interests in a competing business may be acceptable, in Abruzzo’s view, because they do not deal with labor or worker issues that are covered by the NLRA. Abruzzo is dismissive of the interests of businesses in retaining employees, protecting investments in training employees, or protecting their interests in proprietary information and trade secrets, believing that they are unlikely to ever justify an overbroad non-compete provision. In her view, employers may address these concerns by less restrictive means, such as through retention bonuses or narrowly tailored workplace agreements limited to the protection of sensitive business information.
The Memo Builds on the Reasoning of the NLRB in McLaren Macomb.
If this reasoning above has a familiar ring, it should. It is virtually the same position adopted by the NLRB earlier in 2023, there in the context of employer severance agreements. In McLaren Macomb, the NLRB ruled that an employer may not offer severance agreements to terminated employees that contain broad confidentiality or non-disparagement restrictions preventing employees, under the threat of penalty, from disclosing the terms of the Agreement or confidential employer information or from making disparaging statements about the employer to other employees or the general public. Such restrictions violated the NLRA, according to the NLRB, because they “have a reasonable tendency to interfere with, restrain, or coerce employees from exercising their Section 7 rights under the NLRA, adding that “the future rights of employees . . . may not be traded away in a manner which requires forbearance from future . . . concerted activities.”
What does Abruzzo’s Memo Mean for Employers?
While Abruzzo’s memo is not binding law, it reflects the current animosity of the NLRB GC’s office toward any employer conduct, including the use of noncompetes and severance agreements, that could arguably generate uncertainty or cause employees to question whether they are able to exercise their Section 7 rights to engage in protected, collective activity designed to improve their working conditions, or that they had waived such rights, which the NLRA does not permit. Employers should take this opportunity to review their current noncompetes and severance agreements to bring all such documents into compliance with the NLRB GC’s memo and the Board’s decision in McLaren Macomb.
Bean, Kinney & Korman’s employment law practice group works proactively with union and non-union employers of all sizes, to craft a full range of employment policies and documents, including severance agreements, to meet the compliance challenges of the NLRA and all applicable federal, state, and local laws.
If you have questions about the NLRB GC’s memo or the Board’s decision in McLaren Macomb, or need assistance with your severance agreements or other employee policies or forms, please contact Doug Taylor at (703) 525-4000 or rdougtaylor@beankinney.com, or your current Bean, Kinney & Korman attorney.
This article is for informational purposes only and does not contain or convey legal advice. Consult a lawyer. Any views or opinions expressed herein are those of the authors and are not necessarily the views of any client.