NLRB General Counsel Issues Memo Stating That Most Non-Compete Agreements Violate the National Labor Relations Act
On May 30, 2023, Jennifer Abruzzo, the General Counsel of the National Labor Relations Board (NLRB), issued a memorandum setting forth her view that many non-compete provisions in employment and severance agreements violate the National Labor Relations Act (NLRA). The Memo cites a recent article with estimates that more than 18% of American workers, including 13% who earn less than $40,000 a year, are subject to a non-compete agreement.
The Memo sets forth the position that non-compete agreements interfere with employees’ exercise of their rights under Section 7 of the NLRA. The Memo follows the recent NLRB decision in McLaren Macomb which restricts the use of overbroad non-disparagement and confidentiality clauses in severance agreements.
Section 7 of the NLRA protects the rights of private employees, union and non-union, to engage in protected activity – most often thought of in terms of organizing, forming, joining or assisting a union. The Memo explains that Section 7 rights extend to the ability to concertedly seek or accept employment elsewhere, solicit co-workers to work elsewhere, and threaten to or actually resign to secure better working conditions (actions which are typically restricted in a non-compete and/or non-solicit agreement).
In the recent McLaren Macomb decision, the NLRB discussed that Section 7 rights can also include an employee’s right to discuss the terms and conditions of employment with co-workers, to attempt to improve the terms and conditions of employment internally and externally, to file an unfair labor practice charge with the NLRB, to assist other employees in filing charges and assist in the NLRB investigative process (actions which may be restricted by overbroad confidentiality and/or non-disparagement clauses).
The Memo follows the Federal Trade Commission’s (FTC) proposed rule released earlier this year which would essentially ban employers from using non-compete agreements by declaring that a non-compete clause is an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act. The FTC’s proposed rule remains in the rulemaking process at this time.
The NLRB’s and FTC’s recent action, which amounts to a statement of policy by the federal government, follows recent state legislation, including in Illinois, which limits the use of non-competes.
Employers must be aware that employees could use the Memo to file a grievance with the NLRB, arguing that their employer’s use of a non-compete or non-solicit is an unfair labor practice. in light of these directives regarding the potential lack of enforceability of restrictive covenants, employers should consider alternative methods of ensuring the security of their trade secrets and other confidential information.