Why the NLRB General Counsel Thinks Non-Competes Violate the NLRA

National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo has issued a memorandum describing  her stance that the proffer, maintenance, or enforcement of most non-competes violate the National Labor Relations Act (“NLRA”). The General Counsel is responsible for prosecuting cases under the NLRA. Thus, while her recent memorandum does not have the force of law, it signals her intention to prosecute more non-compete cases with the hopes of generating new law.

The General Counsel’s Position
The NLRA applies to both unionized and non-unionized employers. It applies only to non-supervisory employees, however. The NLRA protects, among other things, employees’ rights to engage in concerted activities for mutual aid and protection. General Counsel Abruzzo asserts that a non-compete violates the NLRA if it “reasonably tends to chill” the exercise of employee rights.

She states that, as a general matter, denying access to other employment opportunities reasonably chills employees from exercising their rights because:

• They know they will have greater difficulty replacing lost income if they are terminated for exercising their rights;
• Their bargaining power is undermined in the context of labor disputes, including strikes and lockouts; and
• They are unlikely to reunite at a competitor’s workplace and leverage prior relationships to encourage each other to exercise their rights in the new workplace.
  
  

In particular, the General Counsel posits that overly broad non-competes chill employees from engaging in five protected activities:

• Concertedly threatening to resign to demand better working conditions;
• Carrying out the threat to resign or otherwise concertedly resigning to obtain better working conditions;
• Concertedly seeking or accepting employment with a competitor to obtain better working conditions;
• Soliciting coworkers to work for a local competitor as part of a broader course of concerted activity; and
  
• Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.
  
  

Exceptions Under the Proposed Standard
The General Counsel cited two situations where non-competes may not violate the NLRA:

• Where the non-compete restricts only an employee’s managerial or ownership interest in a competing business; and
• Where the non-compete restricts someone in a true independent-contractor relationship.
  
  

She considered and essentially rejected two other possible exceptions. First, while acknowledging that an employer may have a legitimate business interest in protecting proprietary or trade-secreted information, the General Counsel concluded that employers could use more narrowly tailored agreements to protect these interests. She likewise believes that employers who want to protect their training investments in employees can do so by less restrictive means, like offering a longevity bonus.

Steps to Take Now

• Review your organization’s non-competes and weigh the costs and benefits of using them with non-supervisory employees;
• As part of your review, assess whether non-competes comply with state law scope, territorial, and temporal limitations; and
• Develop a plan for responding should the NLRB adopt the General Counsel’s proposed standard