NLRB General Counsel Cites Top Five Problems With Noncompetes Under the National Labor Relations Act

On May 30, 2023, NLRB General Counsel Jennifer Abruzzo released a memorandum taking a strong position against the use of noncompete provisions in employment contracts, stating that such provisions generally violate the National Labor Relations Act except in limited circumstances. She opined that any provision in an employment agreement violates the NLRA 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.

Section 7 protects the right of employees to self-organize; to form, join or assist labor organizations; to bargain collectively through representatives of their own choosing; and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.

Now calling to extend this standard to noncompetes, Abruzzo argues that offering, maintaining and enforcing an overbroad noncompete agreement reasonably tends to “chill” employees from their exercise of Section 7 rights. Employees may reasonably construe noncompete agreements as barriers to their ability to quit or change jobs by severely limiting employment mobility.

Abruzzo highlights five specific types of activities protected under Section 7 that are “chilled” by noncompetes:

1. Concertedly threatening to resign to demand better working conditions. Employees could view the threats as futile, given their lack of access, and could reasonably fear retaliatory legal action for threatening to breach their agreements.
2. Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
3. Concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
4. Soliciting their coworkers to work for a local competitor as part of a broader course of protected concerted activity. Potential solicitors and employees alike would not be able to act without fear of retaliatory legal action.
5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace. Employees are limited in mobility to engage in activities such as union organizing.

Abruzzo did explicitly note that certain exceptions exist where noncompetes can be justified, such as an employer having a legitimate business interest in the protection of proprietary information. In addition, some noncompete agreements may not violate the NLRA if they are written so that employees could not reasonably construe the provisions as violations of their Section 7 rights. These include provisions that restrict an individual’s managerial or ownership interest in a competing business or true independent-contractor relationships. However, Abruzzo did not expand beyond this and so left a void in substantive guidance for employers in how narrowly tailored their agreements can be.

Why This Matters

Employers must carefully consider including noncompete provisions in employment agreements, as they may open the door to potential litigation. The memo highlights the NLRB General Counsel’s commitment to an interagency approach in addressing restrictions on employee rights, particularly regarding job mobility and information sharing. Employers should consult with employment counsel to evaluate potentially unlawful noncompete and non-solicitation agreements in light of the General Counsel’s directive.

The NLRB Reverts to More Stringent Standard for Independent Contractors

On June 13, 2023, the NLRB issued a decision in The Atlanta Opera, Inc., updating the appropriate standard for determining independent contractor status under the NLRA. In a 3–1 decision, the Board held that the makeup artists, wig artists and hairstylists at the Atlanta Opera are classified as employees rather than independent contractors excluded from the NLRA.

The Board reversed its 2019 ruling in SuperShuttle, where it held that the factor of workers’ entrepreneurial opportunity for gain or loss should be the “animating principle” of the independent contractor test in addition to the usual common law factors. Instead, the Board pivoted back to the 2014 FedEx II standard that considered workers’ entrepreneurial opportunity along with traditional common law factors, questioning whether the worker is indeed rendering services as a part of an independent business. The Board emphasized the economic reality of workers, questioning the validity of the SuperShuttle test due to its heavy dependency on economic opportunities, whether or not these are opportunities workers could realistically take. This decision solidified the standard that was set by core common-law principles that the Supreme Court had determined should guide the employee-independent contractor status analysis. The decision in effect makes it more difficult for employers to classify their workers as independent contractors, which will likely give rise to more potential disputes about classification.

All four board members of the NLRB held that the workers at the Atlanta Opera were employees and eligible to unionize. However, Marvin Kaplan, the Republican member who was part of the SuperShuttle majority, dissented from the reversal and cautioned that this holding will face challenges in the circuit courts.

Why This Matters

While the decision will likely go under further judicial review, the NLRB’s position opens the door for employers to be at risk to union organizing efforts. Workers at gig companies may now have grounds to claim they are covered employees with NLRA protections, but actual outcomes are ambiguous. Nonetheless, employers are advised to seek counsel to review employment contracts and ensure their conditions and terms are optimal.