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The NLRB Joins the Anti Non-Compete Chorus

By Lisa F. Harper, Esq.

On May 30, 2023, Jennifer Abruzzo,  General Counsel for the National Labor Relations  Board (the “NLRB”), took aim against non-compete agreements.  As we advised you in our February 14, 2023 blog, non-compete agreements have been in the cross hairs of Congress, the FTC and President Biden since early 2023.

In a May 30, 2023 Memo by Ms. Abruzzo, the NLRB joined the chorus. In general, Ms. Abruzzo stated that,

Non-compete provisions are overbroad, that is, they reasonably tend to chill employees in the exercise of Section 7 rights, when the provisions could reasonably be construed by employees to deny them 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. Generally speaking, this denial of access to employment opportunities chills employees from engaging in Section 7 activity because: employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; employees’ bargaining power is undermined in the context of lockouts, strikes, and other labor disputes; and, an employer’s former employees are unlikely to reunite at a local competitor’s workplace, and, thus be unable to leverage their prior relationships—and the communication and solidarity engendered thereby—to encourage each other to exercise their rights to improve working conditions in their new workplace.

“Non-Compete Agreements that Violate the National Labor Relations Act” memo   (the “Memo”) at  p. 2. See,

Ms. Abruzzo went on to state, however, that  “the proffer, maintenance, and enforcement of a non-compete provision that reasonably tends to chill employees from engaging in Section 7 activity as described above violate Section 8(a)(1) unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.  But that narrow tailoring referenced by Ms. Abruzzo is not to be based on the business interests that employers generally try to protect.

That is, according to Ms. Abruzzo,  “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.” Nor are  “business interests in retaining employees or protecting special investments in training employees”  such interests that would support use of a non-compete.  Similarly, business interests  “in protecting proprietary or trade secret information”  would not be sufficient business interests to support use of a non-compete  (which Ms. Abruzzo says can be addressed by narrowly tailored other workplace agreements).  See, the Memo at p. 4 -5.

In addition, employers should note that Ms. Abruzzo believes that employees should be able to recover losses for missed opportunities from employers who have subjected the employees to overly broad/illegal non-compete agreements. According to Ms. Abruzzo, NLRB “Regions should seek make-whole relief for employees who, because of their employer’s unlawful maintenance of an overbroad non-compete provision, can demonstrate that they lost opportunities for other employment, even absent additional conduct by the employer to enforce the provision.”  See, the Memo at p. 6.

That said, Ms.  Abruzzo went on to note in the Memo that there might be some non-competes that could withstand NLRB scrutiny.  According to Ms. Abruzzo,

Notwithstanding the above, not all non-compete agreements necessarily violate the NLRA. Some non-compete agreements may not violate the Act because employees could not reasonably construe the agreements to prohibit their acceptance of employment relationships subject to the Act’s protection, for example, provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. Moreover, there may be circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.

The Memo at pp 5-6. (Emphasis supplied).    Thus,  there appears to be some  kind of life left for non-competes even under the scrutiny of the NLRB.  Unfortunately, it will be hard for employers to know where the line is drawn between permissible and impermissible non-compete agreements without further guidance from the NLRB.

Although the Memo does not constitute or have the force of law, it does show the disfavor likely to be employed by the NLRB against non-compete agreements if brought before it. With the possibility of employee remedies against the employers, including recovery of missed opportunity losses, employers should be very circumspect about the situations, if any, in which a non-compete should be used.

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