NLRB General Counsel Asserts Non-competes Violate National Labor Relations Act

On May 30, 2023, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memorandum to all regional directors, officers-in-charge and resident officers setting forth her views that noncompete agreements in employment contracts and severance agreements violate the National Labor Relations Act (NLRA) except in limited circumstances.

“[Noncompete] provisions reasonably tend to chill employees in the exercise of Section 7 rights.”

The memorandum states that noncompete agreements tend to infringe on employees’ Section 7 rights to engage in protected collective action to improve their working conditions under the NLRA and, except in special-case circumstances, violate the law. The memorandum further states that noncompete agreements interfere with the following protected activities:

• Concertedly threatening to resign to secure better working conditions
• Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions
• Concertedly seeking or accepting employment with a local competitor to obtain better working conditions
• Soliciting their co-workers to work for a local competitor as part of a broader course of protected concerted activity
• Seeking employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace

The memorandum recognizes that noncompete provisions may be lawful if they “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.” Additionally, noncompete agreements that protect an employer’s proprietary information or trade secrets may be considered a legitimate business interest if supported by narrowly tailored provisions. The memorandum instructs NLRB regions to seek make-whole relief for employees who are subject to unlawful noncompete provisions and can demonstrate lost employment opportunities.

Employer Takeaways

This memorandum is the latest federal effort to restrict noncompete agreements. In January 2023, the U.S. Federal Trade Commission issued a Notice of Proposed Rulemaking to ban the use of noncompete clauses in employment agreements. While the NLRB memorandum is not binding law, employers who may be impacted should consider reviewing their noncompete and severance agreements in light of this memorandum.