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NLRB General Counsel: Certain Non-Compete Agreements Violate NLRA

June 1, 2023

By Noah R. Jordan, Esquire

In a possible preview of what would be a significant decision from the National Labor Relations Board (NLRB), its General Counsel issued a memo this week in which she expressed her opinion that, with limited exceptions, certain non-compete agreements violate the National Labor Relations Act (NLRA, or the Act).  In her memo, Jennifer A. Abruzzo explained that non-compete agreements interfere with the ability of employees to exercise their rights under Section 7 of the NLRA, which include the “right to self-organization, to form, join, or assist labor organizations, or 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.”  29 U.S.C. § 157.  Ms. Abruzzo has urged the NLRB to formally adopt a standard holding that any provision in an employment agreement that “reasonably tends to chill employees in the exercise of Section 7 rights” would be a violation of Section 8(a)(1) of the Act, unless “narrowly tailored to address special circumstances justifying the infringement on employee rights.”  Such a standard likely would prohibit the enforcement of a majority of non-compete provisions in employment agreements.

In her memo, Ms. Abruzzo explains that non-compete provisions reasonably tend to chill employees in the exercise of their Section 7 rights when they can be read as denying employees the ability to quit or change jobs by limiting their access to alternative employment opportunities.  Such limitations, she explained, discourage employees from seeking to organize to improve their working conditions (knowing that if they are terminated it will be more difficult for them to find new employment), limit employees’ bargaining power during labor disputes, and make it less likely that employees will be able to reunite at a competitor of a former employer.  She further identified five specific types of protected activities which she believes an unlawful non-compete provision would threaten.  These are: (1) the right of employees to concertedly threaten to resign as part of a demand for better working conditions; (2) the ability of employees to follow through on concerted threats to resign; (3) the right of employees to concertedly accept employment with a competitor of their current employer; (4) the right of employees to solicit co-workers to leave their employment for a job with a competitor of their employer; and (5) the right to seek employment for the purpose of engaging in protected activities with employees at another workplace.

According to the General Counsel, any such non-compete provision that is proffered, maintained, or enforced violates the NLRA.  The limited exception would be if such a provision was “narrowly tailored to special circumstances justifying the infringement on employee rights.”  While Ms. Abruzzo did not provide specific examples of what would meet this limited exception, she did state that the desire to avoid competition from a former employee, an interest in retaining employees, and a desire to protect investments in employee training are not sufficient to meet her narrow standard.

While the General Counsel’s memo alone does not result in a change in the law, it provides a road map which she hopes the NLRB will follow in deciding future cases.  In fact, Ms. Abruzzo concludes her memo by inviting cases involving non-compete provisions to be submitted for review.  Therefore, it likely is only a matter of time before the NLRB weighs in on this issue.  The NLRB is not the only federal agency looking into this issue, as the Federal Trade Commission announced earlier this year that it was seeking to ban non-compete agreements.  Clearly, the potential exists for significant change to whether, and under what circumstances, non-compete agreements and non-compete provisions in employment agreements will be permitted to be proffered and enforced.

If you have a question about a non-compete agreement, contact us online or call (412) 338-1195.

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