Yes, the National Labor Relations Board (“NLRB”) General Counsel (“GC”) says virtually all non-compete agreements are illegal. However, although this is the GC’s strong personal view, she does not directly make the law or establish precedent—NLRB action is still required to start that process. Even if the NLRB acts, the National Labor Relations Act (“NLRA”) only covers non-supervisory employees. This is something to monitor, but not something that should cause you to automatically refrain from strategic and reasonable use of non-compete agreements. And, yes, it coincidentally aligns with the proposed rule from the Federal Trade Commission (see our prior alert here).
Though employers uniformly do not enjoy listening to the ruminations of NLRB GC Jennifer Abruzzo, it is clear that all employers need to pay very close attention to what she says and how she says it. The latest off-the-wall proclamation came in a May 30 memorandum, where she asserted her position that non-compete provisions contained in employment contracts and severance agreements nearly always violate federal labor law by preventing former employees from working for competitors. Notably, she previewed this position in March when she issued another memo providing “guidance” on severance agreement provisions in the wake of the NLRB’s McLaren Macomb decision (see our prior blog post here).
GC Abruzzo’s effort to invalidate non-compete agreements seems to stray far afield of the purpose of the NLRA, which is to protect employees’ right under Section 7 to organize, to bargain collectively through a representative, and to engage in concerted activities with other employees for mutual aid and protection—or to refrain from these activities. One snippet from the memo crystallizes in part the lack of a rational basis in the GC’s position: “Generally speaking, this denial of access to employment opportunities chills employees from engaging in Section 7 activity because: 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….” Following that logic to a reasonable extreme, is the GC stating that all non-compete restrictions should be deemed invalid because every employee should expect to be fired for exercising their rights under the NLRA? But, since getting fired for that reason is an independent violation of the law—which can be remedied by the NLRB—a broad rule outlawing non-competes is clearly overkill.
This most recent memo presents another potential challenge for employers on the non-compete front, as it encourages NLRB regional staff to remain alert for this issue and to submit any cases involving non-competes to the Division of Advice (which is where GC Abruzzo’s team will evaluate whether to issue a complaint). Importantly, this memo is not a binding final ruling of any sort but rather GC Abruzzo’s clear expression regarding another target in the crosshairs of her agenda. In order to truly wreak havoc among employers valuing the reasonable use of non-compete agreements, GC Abruzzo will need to convince the NLRB to issue a decision invalidating such an agreement under the NLRA—which unfortunately may not be a heavy lift for her given the current NLRB composition, though the NLRB members would have to be willing to stretch the boundaries of the NLRA.
Notes to Remember/Consider
- This is not just about unionized workers—if the NLRB adopts the GC’s position, it would apply to non-compete agreements for any worker covered by the NLRA.
- Speaking of “covered,” the NLRA only covers non-supervisory employees, so, any potential prohibition on non-compete agreements by the NLRB would not apply to “supervisors,” as defined in the NLRA (see Section 2(11) here). It also would not apply to true independent contractors.
- The GC’s goal to invalidate non-compete agreements may not encompass customer non-solicitation provisions, as she did not expressly say so in the memo.
- There may be “special circumstances” in which a “narrowly tailored non-compete agreement’s infringement on employee rights is justified.” Unfortunately, we just do not know the definition or scope of such “special circumstances.”
What Employers Should Do Now
- Do not panic. Do not overreact. Consider the scope of the NLRA’s coverage and your use of non-compete agreements as you move forward.
- As we have always said, be strategic and careful in the use of non-compete agreements—ensure that they are used when “needed” (not just when “wanted”) to protect legitimate business interests and narrowly tailor the restriction in light of the employee’s role and responsibilities.
- If you are using, or have used, non-compete agreements for non-supervisory employees, be mindful of the GC’s endeavor and reevaluate your process to ensure you are being strategic and careful as described in the prior point. For now, your risk would be that an employee subject to such an agreement files an unfair labor practice charge that GC Abruzzo finds problematic, issues a complaint, convinces an NLRB administrative law judge to strike the agreement, and secures approval of that decision by a panel of NLRB members. The GC is advocating for, and instructing regional staff to seek make-whole relief (traditionally lost wages and benefits) for any employee who, because of a non-compete restriction, can prove that they lost opportunities for other employment—even where the employer has not sought to enforce the non-compete.
- If you are using, or have used, reasonable, tailored non-compete agreements for supervisory employees, the NLRB GC’s ruminations are not an area of concern.
- Continue to protect your proprietary and confidential information, including trade secrets, through direct agreements with employees who have access to such information.
- We are here to help if you need guidance or want to float a potential strategy.
Blank Rome will continue to monitor any and all developments related to this issue, and the proliferation of legislation restricting non-compete agreements, as well as the impact on employers. For more information or assistance, contact any member of Blank Rome’s Labor & Employment practice group.