NLRB General Counsel Wants To Nullify Nearly All Non-Compete Agreements

While MSCI and other business organizations have weighed in against a Federal Trade Commission proposal to restrict non-compete agreements, the National Labor Relation Board (NLRB) recently made its own pronouncement on these contracts. According to lawyers at Blank Rome, the effect of the new policy would be to eliminate virtually all non-compete contracts.

As the law firm Crowell and Moring explained, on May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued a memorandum stating the proffer, maintenance, and enforcement of non-compete agreements between employers and employees tend to infringe on employees’ use of Section 7 of the National Labor Relations Act (NLRA), a labor law clause meant to protect employees’ rights to take collective action to improve their working conditions.

As such, Abruzzo said non-compete agreements are unlawful under the NLRA for non-supervisory employees, unless they are “narrowly tailored” to a special circumstance that justifies the infringement on employee rights.

More specifically, Abruzzo argued non-competes “chill” employees from engaging in the following types of Section 7 activity:

• Concertedly threatening to resign to demand better working conditions. The General Counsel Abruzzo argued employees may view these threats as futile if they have lack of access to other employment opportunities, and they may fear retaliatory legal action if they make them.
• Carrying out concerted threats to resign or concertedly resigning to secure improved working conditions.
• Concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
• Soliciting co-workers to go work for a local competitor as part of a broader course of protected concerted activity.
• Seeking employment to specifically engage in protected activity with other workers at an employer’s workplace. In other words, non-compete agreements may limit employees in union organizing.

General Counsel Abruzzo conceded that there may be circumstances in which a narrowly tailored non-compete that infringes on an employee’s rights is justified by special circumstances, but she did not provide any examples of when that infringement would be justified. She did note, however, that a list of “special circumstances” would not include “a desire to avoid competition from a former employee” and made it clear the NLRB will take the view that non-compete agreements are impermissible when imposed on low or middle-wage workers, or in states where non-compete agreements are unenforceable.

Read the NLRB’s announcement here. The U.S. Chamber of Commerce also has more information on this issue here.