In a memo released May 30, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo announced that noncompete agreements violate the National Labor Relations Act (NLRA). The announcement, which applies to nonunionized and unionized employers, may result in unfair labor practice charges for any employer that uses noncompetes, said Thomas Payne, an attorney with Barnes & Thornburg in Indianapolis.
However, a manager’s or supervisor’s noncompete would seemingly be unaffected by the memo because the NLRA applies only to nonmanagerial, nonsupervisory staff, said James Redeker, an attorney with Duane Morris in Philadelphia. Managers and supervisors are the most likely to have noncompetes, he noted.
Memo’s Contents
The memo explains that overbroad noncompete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the NLRA, which protects employees’ rights to take collective action to improve their working conditions.
“This denial of access to employment opportunities interferes with workers engaging in Section 7 activity in a number of ways,” Abruzzo said in the memo. ” [F]or example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”
Specifically, Abruzzo said, these agreements interfere with employees’ ability 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.
- Seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.
“Although extant board law does not unequivocally recognize a Section 7 right of employees to concertedly resign from employment, such a right follows logically from settled board law, Section 7 principles and the act’s purposes. It is also consistent with the U.S. Constitution and other federal laws. Accordingly, I will urge the board to limit decisions inconsistent with that right to their facts or overrule them,” Abruzzo said in the memo.
The memo stated further that business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad noncompete provision. “U.S. law generally protects employee mobility, and employers may protect training investments by less restrictive means, for example, by offering a longevity bonus,” Abruzzo said. “I note that employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace agreements that protect those interests.”
Overbroad noncompete provisions imposed on low-wage or middle-wage workers who lack access to trade secrets are unlikely to be justified, the memo said. Also, noncompetes are unenforceable in some states, it added.
However, Abruzzo briefly explained that in some cases, noncompete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.
Practical Impact of Memo
As when the Federal Trade Commission proposed barring nearly all noncompetes, employers may consider eliminating the use of noncompetes with low-wage earners, particularly if these workers have no access to proprietary or trade secrets, given the memo’s wording.
An employer that intends to stand by its noncompete agreements should be ready for litigation. The NLRB would find noncompetes even in a nonunionized workforce to be a violation and therefore an unfair labor practice or other restraint on Section 7 rights, said Carrie Hoffman, an attorney with Foley & Lardner in Dallas.
Consequently, “all employers subject to the National Labor Relations Act should evaluate the memorandum,” said Jenn Betts, an attorney with Ogletree Deakins in Pittsburgh.
As with all general counsel memoranda, this memo is not a statement or ruling of the law, Payne said. “The general counsel does not make law, rather she prosecutes the NLRA, and the National Labor Relations Board makes the law. This legal position would only become law if the NLRB issued a decision or an administrative rule that agreed with the general counsel’s position,” he said.
Payne said any employer that uses noncompete agreements, plans to do so in the future or might enforce such provisions now faces the prospect of an unfair labor practice charge and subsequent complaint from the NLRB’s regional offices.
“The memorandum instructs regional offices to submit these types of cases to the Division of Advice,” he said. “The Division of Advice would then opine on whether a complaint should issue.” This is the general counsel’s ordinary process for choosing cases to prosecute that align with the general counsel’s objectives.
“Thus, the general counsel sets the stage for regional offices to file complaints against companies consistent with the general counsel’s legal theory that noncompete agreements violate the NLRA. This means that soon we’ll likely have a case heading to an administrative law judge and later the NLRB that presents the issue.”
The memo also explains that when someone who filed an unfair labor practice charge claiming discrimination in an NLRB case alleges they lost out on work opportunities because of a noncompete provision, NLRB regions should seek to make the individual whole. “Thus, employers are now faced with the prospect of litigation with the NLRB and also an additional avenue for the NLRB to compensate former employees who file unfair labor practice charges,” Payne said.
Unionized employers use noncompetes less frequently than employers that aren’t unionized, he added. Arguably, a noncompete agreement used for union employees would need to be bargained with a union, to the extent it impacts the employees’ terms and conditions of employment, he explained.
