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Jennifer Abruzzo, General Counsel of the National Labor Relations Board (NLRB), issued a memorandum on May 30, 2023, expressing her opinion that most non-competition agreements violate Section 7 of the National Labor Relations Act (NLRA).

 Section 7 of the NLRA protects the right of employees to organize in labor unions and to engage in other “concerted activities.” It is an unfair labor practice in violation of the NLRA for an employer “to interfere with, restrain, or coerce employees” in the exercise of their Section 7 rights.

Chilling Effect 

According to Ms. Abruzzo, non-compete agreements are overbroad and may “chill” an employee’s exercise of Section 7 rights when such provisions “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.”  

This is so, the memorandum asserts, because, among other reasons, “employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions.”

The memorandum identifies five specific types of protected Section 7 activities which the General Counsel believes may be “chilled” by non-competes:

1. “Concertedly threatening to resign to demand better working conditions;”
2. “Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;”
3. “Concertedly seeking or accepting employment with a local competitor to obtain better working conditions”, including “a lone employee’s acceptance of a job as a logical outgrowth of earlier protected concerted activity;”
4. “Soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity;” and
5. “Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.”

Ms. Abruzzo concludes that because of these purported ill-effects, a non-compete provision will always tend to chill an employee from engaging in Section 7 activity “unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.” 

Notably, the memorandum does not identify what conditions would constitute such “special circumstances,” but does assert that “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.”  

Similarly, the memorandum contends that “business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad non-compete provision because U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus.”

The memorandum recognizes the possibility that some non-competes may be valid—but in only the narrow circumstances where an employee “could not reasonably construe the agreements to prohibit their acceptance of employment relationships subject to the [NLRA’s] protection, for example, provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent contractor relationships.”

Conclusion

Ms. Abruzzo’s memorandum is not binding law. Nevertheless, because the General Counsel controls the cases her office will accept and prosecute, employers can expect that challenges to non-competes will be an enforcement priority. It remains uncertain, however, whether the NLRB will adopt the General Counsel’s reasoning, or how the inevitable legal challenges to such a Board decision will be resolved by the courts.

While the NLRB may be set on reining-in non-competes, the actual impact of this effort on employers may be limited. Ms. Abrusso focused her comments on low and middle wage workers. Indeed, Section 7 of the NLRA generally does not apply to supervisors, managers, and owners, so agreements with such individuals are likely safe from review.   

Similarly, as noted, the memorandum expressly recognized the validity of non-competes in the context of restricting managerial or ownership interests in a competing business, or true independent contractor relationships, because these types of workers are not protected by Section 7.

Charles B. Bacharach
410-576-4169 • cbacharach@gfrlaw.com

A version of this article was published by The Daily Record on March 26, 2024.