Yesterday, NLRB General Counsel Jennifer Abruzzo published a Memorandum GC 23- 08, taking the position that proffering, maintaining, or enforcing a non-compete agreement, in most circumstances, violates the National Labor Relations Act by unlawfully restraining employees’ exercise of their Section 7 rights. Section 7 of the Act protects an employees’ right to organize, collectively bargain, and “engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
GC Abruzzo argues that a non-compete provision is overbroad when “it 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 experiences, aptitudes, and preferences as to type and location of work.” Denial of access to employment opportunities chills employees’ exercise of Section 7 rights because employees know they will have greater difficulty replacing their lost income if they are discharged for engaging in protected concerted activity. The Memo identifies five different types of protected concerted activity that could be chilled by a non-compete agreement:
- Concertedly threatening to resign to demand better working conditions;
- Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;
- Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
- Soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
- Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.
The Memo notes that some of the legitimate business interests cited to support the maintenance of non-compete agreements – such as the protection of confidential information and trade secrets, or investments in specialized training – can be protected in other ways.
GC Abruzzo does identify some types of non-compete agreements that would be lawful because employees could not reasonably construe them to restrict the exercise of Section 7 rights, such as an agreement that restricts only an individual’s managerial or ownership interests in a competing business, or some independent contractor relationships. GC Abruzzo also opines that there may be circumstances in which a narrowly tailored non- compete agreement’s infringement on employee rights is justified by special circumstances (although the Memo does not provide an example of what these special circumstances might be).
It should be noted that the Memo does not, in and of itself, make non-competes unlawful under the Act. Instead, the Memo instructs NLRB Regional Directors to submit cases involving non-compete agreements to the NLRB Division of Advice. This will allow the General Counsel’s office to review these cases, with the presumptive goal of identifying cases that should be submitted to the Board for a ruling. It should also be noted that the NLRB has entered into memoranda of understanding with both the Federal Trade Commission – which published a draft regulation that would make most non-competes unlawful earlier this year – and the Department of Justice’s Antitrust Division. These memoranda may result in cases filed with the NLRB also being submitted to these agencies for review.
A full copy of Memorandum GC 23-08 is available online, here.
We will continue to update you on any new developments in this area. If you have any questions about how this GC Memo may affect your business’ covenants not to compete, please call our office. Thank you.
This Client Alert provides a general overview of new legal developments. It is not intended to provide legal advice. If you have questions or would like more information about how these developments may affect your business, please contact us at (570) 341-8800.