Jennifer Abruzzo, the General Counsel of the National Labor Relations Board (NLRB), has called for non-compete agreements to be curtailed on a nationwide basis for a large swath of employees. In a recent memorandum – which is not binding precedent of the NLRB and only an explanation of the General Counsel’s prosecutorial priorities – Abruzzo contends that non-competes interfere with employee rights guaranteed by the National Labor Relations Act (NLRA). Her memo follows on the heels of the NLRB’s attack on confidentiality and non-disparagement provisions in separation agreements earlier this year and marks Abruzzo’s latest move to assert the primacy of the NLRA over other employment laws and consensual agreements between employers and employees.
Broadly speaking, non-compete agreements are designed to protect employers’ legitimate business interests by restricting employees’ abilities to work for competitors. These agreements are lawful in most states (except California) and are governed by state, rather than federal, law. Typically, to be enforceable, non-compete agreements must be reasonable in geographic and temporal scope, and necessary to protect an underlying business interest, such as confidential information, investments in employee training or customer goodwill. The General Counsel memo seeks to upend this well-established framework by announcing that an employer violates the Act by implementing, maintaining or enforcing non-compete restrictions upon non-managerial employees unless it can demonstrate “special circumstances” justifying such restrictions that will be difficult for most employers to establish.
Abruzzo’s rationale for the memo is primarily based on the “chilling effect” that non-compete agreements purportedly have on employee rights under the NLRA. Abruzzo argues that non-competes discourage employees from threatening to resign to improve working conditions or gain new, better employment. This “chilling effect” inhibits employee bargaining strength and opportunities to pressure their employers. She also notes that a lack of economic mobility impedes union organizing. Abruzzo went so far as to suggest that restrictions prohibiting employees from working for a competitor even while employed by their existing employer also violate the Act.
The memo provides extremely limited exceptions for narrowly tailored non-compete agreements that target employees’ ownership interests or other independent business relationships unrelated to their general rights under the NLRA. This narrow exception, as imagined by the General Counsel, would apply to very few non-competes.
If the NLRB adopts Abruzzo’s radical interpretation of the Act, it will have far-reaching implications for employers who use non-compete agreements for non-managerial employees, insofar as the NLRA covers virtually all private sector employers. Under the Act, managers and supervisors are not considered “employees” entitled to the law's protections.
While this memo does not immediately change “the law” on point, employers can expect that employees covered by non-compete agreements may seek to challenge their enforceability through the Board’s administrative processes. Moreover, Abruzzo’s action here aligns with other attacks on employment-based non-compete restrictions coming from federal and state authorities, including those by the Federal Trade Commission and various states, including New Jersey.
While it remains to be seen whether Abruzzo’s attack on non-competes becomes the law of the land, employers should note that policymakers and regulators are taking an increasingly tough line against the use of non-competes and consult with experienced counsel to ensure they are optimally designed to withstand legal attack.
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