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Print articleNLRB’s GC Piles on to Increase Regulatory Scrutiny of Non-Compete Agreements
June, 2023 - Mitchell J. Rhein
As we have often discussed, the National Labor Relations Board under the Biden administration has prioritized expanding employees’ rights under Section 7 of the National Labor Relations Act (the “Act”). Most recently, in GC Memo 23-08, the General Counsel, Jennifer Abruzzo, argued that the “proffer, maintenance, and enforcement” of non-compete agreements violate the Act because they interfere with employees’ rights under Section 7.
In the General Counsel’s opinion, non-compete agreements chill employee mobility, and such mobility is either protected by Section 7 or closely related to other Section 7 rights (e.g., the right to threaten to quit for better employment opportunities). The General Counsel’s opinion is not law – it is a statement of the position she and the Board’s Regions will take in prosecuting alleged violations of the Act. However, unionized and non-unionized employers should carefully evaluate whether to continue to offer, maintain, or enforce non-compete agreements because it is likely the Board’s investigators will target these agreements in unfair labor practice charge proceedings.
The General Counsel recognized that there may be circumstances in which non-compete agreements do not violate employees’ rights under Section 7. For example, in some cases, non-compete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. The General Counsel also recognized that narrowly-tailored agreements limiting the disclosure of trade secrets may be lawful. Moreover, while the General Counsel acknowledged that there may be circumstances where a narrowly tailored non-compete agreement’s infringement on employee rights may be justified by special circumstances, employers should narrowly interpret “special circumstances.” The General Counsel’s position is that that retaining employees or protecting special investment in training employees are unlikely to “ever justify” an overbroad non-compete provision.
Keep in mind that, notwithstanding the General Counsel’s recent opinion, statutory supervisors do not have the same Section 7 rights as employees. As a result, employers may offer, maintain, and enforce non-compete agreements with respect to supervisors without violating the Act (or running afoul of the General Counsel’s opinion).
The Board’s General Counsel is not the only person or entity targeting non-compete agreements. In January 2023, the Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking to broadly ban the use of non-compete covenants throughout the country. The FTC, NLRB, and the Department of Justice’s Antitrust Division also have agreed to collaborate on enforcement of labor and antitrust laws. In short, non-compete agreements will continue to receive increasing regulatory scrutiny. Employers should carefully weigh the costs of this scrutiny against what is actually gained in restricting their employees’ ability to work for competitors.
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In the General Counsel’s opinion, non-compete agreements chill employee mobility, and such mobility is either protected by Section 7 or closely related to other Section 7 rights (e.g., the right to threaten to quit for better employment opportunities). The General Counsel’s opinion is not law – it is a statement of the position she and the Board’s Regions will take in prosecuting alleged violations of the Act. However, unionized and non-unionized employers should carefully evaluate whether to continue to offer, maintain, or enforce non-compete agreements because it is likely the Board’s investigators will target these agreements in unfair labor practice charge proceedings.
The General Counsel recognized that there may be circumstances in which non-compete agreements do not violate employees’ rights under Section 7. For example, in some cases, non-compete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. The General Counsel also recognized that narrowly-tailored agreements limiting the disclosure of trade secrets may be lawful. Moreover, while the General Counsel acknowledged that there may be circumstances where a narrowly tailored non-compete agreement’s infringement on employee rights may be justified by special circumstances, employers should narrowly interpret “special circumstances.” The General Counsel’s position is that that retaining employees or protecting special investment in training employees are unlikely to “ever justify” an overbroad non-compete provision.
Keep in mind that, notwithstanding the General Counsel’s recent opinion, statutory supervisors do not have the same Section 7 rights as employees. As a result, employers may offer, maintain, and enforce non-compete agreements with respect to supervisors without violating the Act (or running afoul of the General Counsel’s opinion).
The Board’s General Counsel is not the only person or entity targeting non-compete agreements. In January 2023, the Federal Trade Commission (“FTC”) issued a Notice of Proposed Rulemaking to broadly ban the use of non-compete covenants throughout the country. The FTC, NLRB, and the Department of Justice’s Antitrust Division also have agreed to collaborate on enforcement of labor and antitrust laws. In short, non-compete agreements will continue to receive increasing regulatory scrutiny. Employers should carefully weigh the costs of this scrutiny against what is actually gained in restricting their employees’ ability to work for competitors.
Link to article
