On May 30, 2021, Jennifer Abruzzo, General Counsel of the National Labor Review Board (NLRB) issued a memorandum asserting that broad non-compete agreements are unlawful under the National Labor Reviews Act (NLRA). Non-compete agreements, often contained in employment or severance agreements, restrict employees in the jobs they can obtain concurrent with and after employment. While the memo only “provides policy guidance,” it, along with federal and state legislative and regulatory trends, reflects continuing momentum to restrict use of non-competes that impair employee opportunities and mobility.
The memo explains how broad non-competes “chill” an employee’s rights and therefore can be unlawful under the NLRA. First enacted in 1935, the NLRA is a foundational labor rights statute that protects an employee’s “right to self-organize” – including by forming labor organizations, undertaking collective bargaining, and engaging in other “concerted actions” for mutual aid or protection – and prohibits employers from interfering with those rights. First, non-competes restrict employees’ ability to exercise their right to organize by limiting their employment opportunities if discharged for organizing activity. Second, non-competes limit employee mobility because they restrict the ability to leverage resignation to demand better working conditions; the mere existence of a non-compete limits access to future employment, thereby making threat of resignation more futile. Third, non-competes prohibit employees from seeking or accepting employment with competitors to obtain improved working conditions. Non-competes limit employees’ ability to seek other employment in the face of poor working conditions and disincentivize companies from making improvements, enabling companies to evade the consequences of or complaints about poor working conditions.
For these reasons, the memo declares that overly broad non-competes violate the NLRA except in limited circumstances, for example to restrict the sharing of employer trade secrets. While an employer may argue that non-competes help retain employees or avoid competition, the memo recognizes that employers can utilize less chilling means, for example a longevity bonus. Moreover, an employer’s justification for a non-compete is less reasonable when imposed against low wage or middle-waged workers, who are less likely to have access to a company’s trade secrets, for example.
The NLRB’s memo does not stand alone and may help compel increased activity to limit non-compete agreements. In January 2023, the Federal Trade Commission issued a proposal to ban all non-competes except in limited circumstances. The proposal was subject to public comment and now awaits a vote on its final version. Following the FTC’s proposed rule, a bipartisan group of legislators resurrected efforts to introduce and pass the “Workforce Mobility Act of 2023,” previously introduced in 2019 and 2021, to ban non-competes except under limited circumstances. Many states, however, have already taken legislative action: three states have banned non-competes except under limited circumstances, and several states have prohibited non-competes in many circumstances, for example for low wage workers. Together, these efforts represent increasing condemnation of non-competes and their “chilling effect” on workers.
If you have concerns about your non-compete agreement, please contact us today.
