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NLRB General Counsel: Non-Competes Violate Federal Law

NLRB General Counsel: Non-Competes Violate Federal Law

National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo said in a memorandum last week to agency lawyers and regional leaders that most non-compete provisions are unfair labor practices that violate the National Labor Relations Act (NLRA) because, among other things, they erode employees’ bargaining power in labor disputes and their right to change, or threaten to change, jobs for better working conditions.

Importantly, the General Counsel’s opinion set out in the memo is not binding law at this time. However, given the widespread press coverage of the memo, it is likely that a number of challenges to non-compete clauses will be filed with the NLRB and will eventually make their way through the agency’s enforcement pipeline to the Board to
establish NLRA precedent.

“ILMA members, as employers, are affected by the NLRB General Counsel’s memo, especially if their workplaces are not unionized,” said ILMA General Counsel Jeff Leiter. “Labor contracts typically are negotiated, so it is possible that the NLRB will be reluctant to interfere with these union agreements.”

The memo is another move by the Biden Administration to limit or eliminate noncompete clauses in employment agreements. Earlier this year, the Federal Trade Commission (FTC) proposed a near complete ban on non-compete provisions. ILMA was one of more than 18,000 commenters on the FTC’s proposed rulemaking. The NLRB, FTC and Antitrust Division of the Department of Justice inked a memorandum of understanding last year to cooperate on enforcement matters involving non-competes. Additionally, some states are moving to restrict or prohibit non-compete agreements, especially for lower-wage workers.

“Regardless of the FTC’s final rule and the NLRB General Counsel’s position on the issue, ILMA members have recognized for some time the need to ensure that all restrictive covenants they use are tailored as narrowly as possible to serve their
legitimate business interests,” said ILMA CEO Holly Alfano. “Nonetheless, employers need to anticipate aggressive enforcement and should assess their agreements with restrictive covenants with counsel.”

The General Counsel argues in her memo that, except in limited circumstances, noncompete clauses are overbroad and “tend to chill” employees’ exercise of their Section 7 rights under the NLRA to improve their working conditions. Specifically, she said that they weaken workers’ ability to quit their jobs by cutting off their access to other suitable
employment. The General Counsel also identified five activities specifically protected by NLRA Section 7 with which she believes non-competes interfere, including restraining employees’ ability to concertedly threaten to resign to obtain better working conditions, as well as restraining them from soliciting their co-workers to change jobs and from engaging in protected activities under the NLRA.

The General Counsel says in the memo that employers’ desire to avoid competition is not a legitimate business interest that warrants protection through non-competes. She suggests that employers can adequately protect their interests, such as maintaining trade secrets and retaining trained employees, through longevity bonuses and nondisclosure agreements.

Finally, the General Counsel noted that some non-compete agreements do not violate the NLRA, with the examples given of restrictions on workers’ owning an interest in a competing business or restrictions on independent contractors working for direct competitors.