National Labor Relations Board (NLRB) General Counsel (GC) Issues Memorandum on Non-Compete Agreements. Urges NLRB to Make New Law Rendering Non-Compete Agreements Unlawful.
On May 30, 2023, NLRB GC released Memorandum 23-08 which urges the National Labor Relations Board to make new law declaring the proffer, maintenance, and enforcement of employee non-compete agreements by employers unlawful under the National Labor Relations Act (NLRA). This unprecedented move follows the Federal Trade Commission’s recent controversial proposal to ban virtually all non-compete agreements with only limited exceptions.
As background, Section 7 of the NLRA provides both unionized and non-unionized employees with the “right to self-organization, 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.” An employer violates Section 8(a)(1) of the Act if it interferes with, restrains, or coerces employees in the exercise of these Section 7 rights.
In the memo, the GC states that, with very limited exceptions, non-competes tend to “chill” employees in the exercise of Section 7 rights under the NLRA and that such agreements therefore violate Section 8(a)(1) of the Act. The GC also declares that non-competes “chill” employees from engaging in five specific types of activity protected under Section 7:
- Concertedly threatening to resign to demand better working conditions.
- Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.
- Concertedly seeking or accepting employment with a local competitor to obtain better working conditions.1
- Soliciting their co-workers to work for a local competitor as part of a broader course of protected concerted activity.
- Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.
Notably, the GC said she already authorized issuance of a complaint alleging the unlawful maintenance of a non-compete provision that impacted low-wage employees because “there was no evidence of a legitimate business interest justifying the provision.” However, she expressly acknowledged that non-competes restricting an individuals’ managerial or ownership interest in a competing business and “true” independent-contractor relationships can be lawful and recognized that a narrowly tailored non-compete may be justified by special circumstances. Exactly what circumstances would suffice in the GC’s view is, however, unclear, since the memo says they are unlikely to include training and investments in employees or protecting proprietary or trade secret information – all common reasons for employers to use non-competes.
Although non-competes often include non-solicitation agreements, the GC did not specify whether non-solicitation agreements are also implicated. Nor did the GC address the tension between her position and the laws of numerous states that recognize an employer’s right to protect proprietary information and customer goodwill through narrowly tailored non-competes.
It is important to recognize that the Memorandum represents the GC’s opinion on how the NLRA should be interpreted. Notably, that opinion is at odds with the current state of the law. That said, it signals that employers can reasonably expect to see additional complaints filed by the NLRB based on unfair labor practice charges in which employees or unions claim a particular employer’s non-compete violates the Act. Accordingly, although issuance of the Memorandum is notable, it does not require employers to take action other than to possibly revisit the agreements they are currently using to evaluate potential implications.