In a continued effort to crack down on provisions in employment agreements, the National Labor Relations Board’s General Counsel (“GC”) announced that she will find most noncompete agreements between private sector employers and non-supervisory employees unlawful, absent special circumstances justifying the noncompete.

In the memo, which was released to the NLRB’s field offices May 30, Jennifer A. Abruzzo concluded that noncompete agreements hinder employees in the exercise of Section 7 rights – that is, their right under the National Labor Relations Act to collectively improve their working conditions – because they block access to new or different employment opportunities. In the GC’s view, this is problematic because:

• Employees know they will have greater difficulty replacing their lost income if they are discharged for exercising their Section 7 rights.
• Employees’ bargaining power is undermined in the context of lockouts, strikes and other labor disputes.
• Former employees are unlikely to reunite at a local competitor’s workplace, and therefore, are less likely to leverage their prior relationships to achieve better working conditions in their new workplace.
• Employees are less likely to concertedly threaten resignation, go through with resignation or seek or accept employment opportunities with local competitors to obtain better working conditions.

Though Abruzzo recognized that extant Board law does not unequivocally recognize a Section 7 right to concertedly resign from employment, she concluded that such a right follows logically from law and policy.

Under the standard the GC urges the Board to adopt, a provision in an employment agreement violates the Act if it reasonably tends to chill employees in the exercise of their Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights. An employer’s desire to avoid competition from a former employee, for example, is not a special circumstance nor is an employer’s business interest in retaining employees or protecting their investment in training employees. The GC suggested that there are less restrictive ways to achieve these goals, such as offering employees a longevity bonus. It is also no defense that employees contractually agreed to a noncompete because employees cannot waive Section 7 rights in individual contracts.

The GC directed field offices to submit cases involving potentially overbroad noncompete agreements to the Division of Advice, which provides guidance regarding difficult and novel issues arising in the processing of unfair labor practice charges.

The NLRB is not the only federal government agency scrutinizing noncompete agreements. In January, the Federal Trade Commission also issued a proposed rule to ban noncompete agreements, though that rule has not been finalized. State governments are also taking on noncompete agreements – Minnesota’s ban on noncompetes goes into effect July 1, and New York is considering a similar ban. California, North Dakota and Oklahoma already ban virtually all noncompetes and at least 10 other states limit the use of noncompetes.

Key Takeaways for Employers

• The GC’s memo is not Board law, but a preview of how the NLRB’s field offices will address unfair labor practice charges alleging that a noncompete agreement is overbroad, and these cases may soon end up before the Board for decision.
• Nondisclosure and other confidentiality agreements that protect proprietary and trade secret information remain lawful, so long as they are narrowly tailored.
• Noncompete agreements that restrict only an individual’s managerial or ownership interest in a competing business may still be lawful. Likewise, noncompete clauses issued to statutory supervisors will not violate the Act.
• The GC may not stop at noncompetes. In a March memo, Abruzzo said that in addition to noncompete clauses, she believes nonsolicitation clauses, no-poaching clauses and certain cooperation requirements in employment agreements may violate Section 7 rights.

Miles & Stockbridge’s labor lawyers routinely assist employers with NLRB matters, collective bargaining and other labor issues affecting union and nonunion workplaces.

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