National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo recently issued a memo indicating that virtually all non-compete agreements violate the National Labor Relations Act.
Ms. Abruzzo suggests that the Board begin to view overbroad non-compete agreements as violating Section 8(a)(1) of the National Labor Relations Act (NLRA). In the General Counsel’s view, any overbroad non-compete agreement which “reasonably tends to chill employees” from exercising their right to self-organization, participating in labor unions, engaging in collective bargaining, or other concerted activities will be seen as a violation of 8(a)(1) and Section 7 of the NLRA. Non-compete agreements are overbroad when “the provisions could reasonably be construed by employees as denying them the ability to quit or change jobs” by essentially cutting off employment opportunities for which they would otherwise qualify.
In addition to preventing employees from enjoying mobility in the job market, the General Counsel cites five specific circumstances where non-compete clauses chill employees from conducting activities protected by Section 7: (1) employees are chilled from threatening to resign in concert as a negotiation bargaining chip in obtaining better working conditions; (2) employees are chilled from carrying out such concerted resignation threats in order to obtain better working conditions; (3) employees are chilled from seeking or accepting employment from a local competitor in order to obtain better working conditions; (4) employees are chilled from soliciting their co-workers to go to a local competitor as part of a broader concerted activity; and (5) employees are chilled from seeking employment to specifically engage in protected activity with other workers at an employer’s workplace (such as union organizing, which may require working with multiple employers in a specific trade and geographic region).
Business interests in retaining employees or protecting special investments through the training of employees are unlikely to ever classify as a reasonable justification for an overbroad non-compete provision. In addition, the General Counsel specifically noted that it is unlikely that a reasonable justification for an overbroad non-compete clause will be found in any instance involving low-wage or middle-wage workers who lack access to trade secrets or other protectible interests, or in states where non-compete provisions are unenforceable.
The General Counsel notes that non-compete provisions which are “narrowly tailored” to “special circumstances” which justify the infringement on an employee’s rights are still proper under the NLRA.[1] Similarly, non-compete agreements in which employees could not reasonably construe the agreement to prohibit an employee’s acceptance of employment relationships subject to the NLRA’s protection will also be allowed. For example, provisions which only restrict an employee’s managerial and ownership interests in a competing business, or “true independent-contractor relationships,” would be acceptable under the NLRA. The General Counsel directed NLRB Regions to give relief to employees who can demonstrate that they lost opportunities for other employment because of a non-compete provision, even if the employer does not actively enforce the provision.
If you have questions about this development, please contact Johnson & Bell Employment Law Shareholders, Christopher J. Carlos or Caroline K. Vickrey.
[1] The General Counsel did not define “narrowly tailored” or “special circumstances” in their memorandum and the NLRB refused to define “narrowly tailored” in previous decisions, albeit in the context of severance agreements.
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