NLRB General Counsel Memo Targets Employee Non-Compete Agreements

Recently, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo released a memo urging the NLRB to declare employee non-compete agreements unlawful under the National Labor Relations Act (NLRA). Notably, if the NLRB were to adopt Abruzzo’s position, it would be an unprecedented expansion of its authority. Abruzzo’s push to ban non-competes follows recent action by the Federal Trade Commission (FTC). In January, the FTC proposed a rule that would ban non-compete clauses in contracts.

The Purpose of Employee Non-Compete Agreements

Non-compete clauses are terms within an employment contract that prevent an employee from working for a competing employer or starting a competing business within a specific geographic area and period of time after a worker’s employment ends. This is often done to protect trade secrets, reduce labor turnover, and improve employer leverage in future negotiations with workers. Federal and state jurisdictions regularly review employee non-compete agreements, particularly when they concern unequal bargaining power between employers and workers.

Section 7 of the NLRA

Rights under the NLRA apply to most employees, whether the workplace is unionized or non-unionized. Meanwhile, the NLRB’s statutory jurisdiction covers private-sector employers whose interstate commerce activities exceed specified minimum levels, variable by business type. Coverage is similar to that of the Fair Labor Standards Act (FLSA), one of five employment laws businesses need to know. Section 7 of the NLRA guarantees employees “the 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," as well as the right "to refrain from any or all such activities.” Meanwhile, Section 8(a)(1) of the NLRA prohibits employers from interfering with, restraining, or coercing employees in the exercise of their rights to engage in protected concerted activity.

The NLRB Memo on Employee Non-Compete Agreements

In Abruzzo’s recent memo, Non-Compete Agreements that Violate the National Labor Relations Act, she states that with a few exceptions, employee non-compete agreements tend to discourage employees from fully exercising their rights under the NLRA. According to the memo, therefore, these non-competes are a violation of Section 8(a)(1) of the NLRA. The memo shares the possibility that employee non-compete agreements could coerce employees from engaging in the following types of protected activity:

• concerted threats of resignation in exchange for better working conditions (which a non-compete agreement would render ineffective);
• following through with such concerted threats to resign for better working conditions;
• concertedly seeking or accepting employment with a local competitor offering better working conditions;
• soliciting other workers to work for a local competitor as part of a broader concerted effort; and
• looking for employment to engage in protected activity at an employer’s workplace.

While Abruzzo’s memo is an unprecedented push to expand the scope of the NLRA, the NLRB itself has not yet adopted any position on the matter. Therefore, employers have no specific obligations to revise employee agreements at this time. Still, as Abruzzo retains authorization to issue complaints on NLRA matters, employers should at least examine their employment agreements and any non-compete clauses to ensure they don’t coerce workers from exercising their rights under the NLRA.