NLRB General Counsel Takes Aim at Non-Competes
While employers wait to see whether, and to what extent, the Federal Trade Commission enacts its proposed rule banning non-competes, the Office of the General Counsel for the National Labor Relations Board (the “NLRB”) has joined the fray, denouncing the legality of restrictive covenants. On May 30, 2023, Jennifer A. Abruzzo, General Counsel of the NLRB (the “General Counsel”), released a memorandum (GC 23-08) that concluded non-compete agreements can interfere with employees’ exercise of rights under Section 7 of the National Labor Relations Act (the “NLRA”), and, in such case, are unlawful.
Generally, a non-compete agreement prohibits an individual from accepting specified jobs with competitors of such individual’s former employer in a set geographic location and for a set duration. The NLRA protects the rights of certain employees, “to self-organization, to form, join, or assist labor organizations, to 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.” So, how then do non-competes fall within the purview of the General Counsel of the NLRB?
In her memorandum, General Counsel Abruzzo concluded that non-compete covenants reasonably chill employees’ exercise of their Section 7 rights, “when the provisions could reasonably be construed by employees to deny [the employee] the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.” The General Counsel views non-competes as undermining employees’ bargaining power under Section 7 of the NLRA by chilling employees from:
- Concertedly threatening to resign to demand better working conditions because the threats could be seen as futile due to the lack of access to other employment opportunities;
- Carrying out concerted threats to resign to secure better 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 activity; and
- Seeking employment to specifically engage in protected activity with other workers at an employer’s workplace.
The General Counsel left some room for permissible non-competes as long as they are “narrowly tailored to special circumstances justifying the infringement on employee rights.” The General Counsel does not expound on what is included as a special circumstance; however, she made clear that she does not view avoiding competition from a former employee, retaining employees, or protecting training investments as special circumstances that justify a non-compete. The memorandum also notes that protecting proprietary information can be addressed in ways other than non-competes, like “by narrowly tailored workplace agreements that protect those interests.”
While the protections of the NLRA do extend to non-unionized workforces, they apply only to non-supervisory employees. Under the NLRA, a “supervisor” is an individual having authority to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with those actions the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment. Even with highly compensated employees, or employees who otherwise have access to highly confidential information, employers must consider this definition of supervisor before assuming an employee is excluded from the protections of the NLRA.
What does this mean for employers going forward? Much like the FTC’s proposed rule, the General Counsel’s memorandum does not immediately make non-competes unlawful. The memorandum states the current position of the General Counsel of the NLRB; however, she does not have authority to unilaterally implement this position. Instead, NLRB regional directors must submit cases addressing this topic for review by NLRB administrative law judges (“ALJ”). An ALJ decision may be appealed to the NLRB for a determination. Finally, the NLRB decision is subject to review by federal courts, which have the authority to set aside the decision, enforce it, or remand it back to the NLRB. Accordingly, while employers will want to follow this process closely, the memorandum alone does not mandate immediate responsive action (other than to consider the potential for case submissions by a regional director).
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.