NLRB general counsel says "No" to non-compete agreements

On May 30, 20203, the General Counsel for the National Labor Relations Board (NLRB), Jennifer Abruzzo, issued an advisory memorandum stating her position that non-competition clauses violate the National Labor Relations Act (NLRA or the “Act”). While the memorandum is “advisory,” employers need to be proactive in addressing what is now a multi-pronged attack by federal agencies on non-competes, with the Federal Trade Commission’s proposed rule against non-compete agreements still pending. Through federal fiat, these agencies could unwind a long history of state law precedent that generally supports reasonably tailored non-compete agreements that balance the protection of a business’s interests in customer good-will and confidential and trade secret information with an employee’s right to pursue a livelihood in the field of their choice. 

Abruzzo stated her belief that non-compete agreements violate Section 8 of the Act because they interfere with employees’ “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,” which are rights guaranteed by Section 7.  

Abruzzo listed five principal justifications for her belief:

• "First, [non-competes] chill employees from concertedly threatening to resign to demand better working conditions.
• Second, [non-competes] chill employees from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
• Third, [non-competes] chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
• Fourth, [non-competes] chill employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity.
• Finally, [non-competes] chill employees from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.”  

Abruzzo did concede that there may be certain situations where non-competes might in fact be viable such as in: 

1. Situations that only restrict an individuals’ managerial or ownership interests in a competing business
2. An independent contractor relationship
3. For supervisors as defined in the Act which are not protected by the NLRA
4. Circumstances in which a narrowly tailored non-compete’s infringement on employee rights is justified by special circumstances.    

Employer insight and recommended action

The  NLRB’s advisory memorandum is the latest development in an increasing number of federal agencies taking specific exception to the continued viability of non-compete agreements.  There are undoubtedly further developments and legal maneuvering to come.  Some immediate takeaways:

1. There is no question that non-competition agreements are under strict scrutiny by various federal agencies, including the NLRB.  Unfair labor charges are now a possibility for non-compete agreements.
2. As of now, the state laws that govern non-compete agreements in each respective jurisdiction have not been displaced or overturned.
3. Employers need to specifically identify the business interests they need to protect – i.e., customer good-will, confidential and trade secret information – and evaluate the instruments needed to protect them and identify the employees that truly have access to them.  

The national trade secret, non-compete, and unfair competition team at McDonald Hopkins will continue to monitor further developments in this area.  In the meantime, reach out to the author or any other team member at McDonald Hopkins to discuss your business’s particular situation.