Do Non-Compete Agreements Violate the NLRA?

On May 30, 2023, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memorandum stating her position that non-compete agreements violate the National Labor Relations Act (NLRA) and encouraging the NLRB to adopt this position.

Background on the NLRA

The NLRA applies to employers whether or not their employees are unionized. With few exceptions, employees in any workforce have the right to engage in protected activity under the NLRA to try to improve their working conditions. This is commonly referred to as Section 7 activity or “protected concerted activity” (PCA).

How Abruzzo Claims Non-Compete Agreements Violate the NLRA

The full text of Abruzzo’s memo can be found on the NLRB’s website.

Abruzzo made two general arguments for concluding that non-compete agreements violate the NLRA:

1. Non-compete provisions are overbroad and the denial of access to other employment opportunities chills employees in exercising Section 7 rights (i.e., engaging in PCA). She reasons this is true because employees know they will have a harder time finding employment if they are discharged for engaging in PCA.
2. Employees are unable to leave employer A and start work for employer B and then “leverage their prior relationships” to encourage each other to engage in PCA to improve working conditions in their new workplace.

Abruzzo claims non-competes chill employees from engaging in 5 specific types of PCA:

1. Concertedly threatening to resign to demand better working conditions. Employees could fear retaliation in the form of threats to enforce the non-compete agreements (i.e., face legal action), which she says violate the NLRA.
2. Carrying out their concerted threats to resign to secure improved working conditions.
3. Seeking or accepting employment with a local competitor to obtain better working conditions.
4. Soliciting their coworkers to work for a local competitor as part of a broader course of PCA. Abruzzo seems to imply further that prohibiting an employee from soliciting coworkers to work for a competitor would also violate the NLRA.
5. Seeking employment, at least in part, to engage in PCA with other workers at an employer’s workplace (i.e., trying to extend this to multi-employer workplaces).

When Non-Compete Agreements are Appropriate

The memo states that “the proffer, maintenance, and enforcement of a non-compete provision that reasonably tends to chill employees from engaging in [PCA] … violate Section 8(a)(1) [of the NLRA] unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.”

Abruzzo went further by preemptively stating her belief that “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.” Her suggested work-around was to offer “longevity bonuses” in lieu of non-competes.

The memo did specify that protections of proprietary or trade secret information can be appropriate, but an employer would have to show the worker had access to trade secrets and proprietary information. She inferred this would not be the case for low- or middle-wage workers.

The memo also stated that not all non-competes violate the NLRA and noted, for example, that provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business would not seem to violate the NLRA because an employee would not misconstrue that to infringe on their rights to accept competing employment.

It is also worth mentioning that managers and supervisors do not have the same PCA or other NLRA rights as other workers, and therefore the General Counsel’s memo does not apply to those categories of employees.

Does this apply to non-competes that were signed before the memo?

Abruzzo did not say whether she intends to pursue non-compete agreements entered into before the issuance of the memo—in other words, whether her enforcement position would apply retroactively to non-competes executed months or years ago. Employers should note that in a prior memo concerning severance agreements, she argued that “maintaining and/or enforcing a previously-entered severance agreement with unlawful provisions that restrict the exercise of Section 7 rights continues to be a violation and a charge alleging such beyond the [limitations] period would not be time-barred.” It would be safe to assume she will take the same position on non-competes and pursue previously existing agreements as violations of the NLRA.

Key Takeaways for Employers Using Non-Compete Agreements

While this is a memo and not binding law, it is certainly information you need to be mindful of when assessing the reasonableness of your non-compete agreements. Coming from the General Counsel for the NLRB, it also signals the administration’s enforcement priorities, so you may see more complaints and enforcement actions on non-compete agreements.

If you are unsure whether your non-compete agreements could lead to NLRB scrutiny, or whether they comply with Virginia law or the proposed FTC rules, please contact a member of our Labor & Employment team to discuss your concerns.