NLRB Update: Non-Competition Agreements
The memorandum, while not binding law, demonstrates the theories that the General Counsel will prosecute. This latest memorandum states that certain non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act (NLRA).
The memorandum explains that overbroad non-compete agreements are unlawful because they chill employees from exercising their rights under the NLRA, which protects employees’ rights to take collective action to improve their working conditions.
Specifically, the memorandum notes that certain non-competition agreements interfere with employees’ rights to:
- Concertedly threaten to resign to secure better working conditions;
- Carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions;
- Concertedly seek or accept employment with a local competitor to obtain better working conditions;
- Solicit their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
- Seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.
According to the memorandum, however, there are instances in which the General Counsel will likely find non-competition agreements to be enforceable. These include agreements that “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.”
Furthermore, non-competition agreements that protect an employers’ trade secrets or proprietary information may be upheld as a legitimate business interest if such agreements are narrowly tailored. Such legitimate business interest will not be found in common situations where overbroad non-compete provisions are imposed on “low-wage or middle-wage” workers who lack access to trade secrets or other protectable interests.
Finally, it is important to note that the General Counsel’s prohibition on non-competition agreements does not apply to supervisors and managers who are not subject to the NLRA.
This is the latest federal action to restrict non-compete agreements, following the Federal Trade Commission’s Notice of Proposed Rulemaking issued in January 2023 to broadly ban the use of non-compete agreements throughout the country.
The press release and memorandum may be viewed here.