On May 30, 2023, the General Council of the NLRB, Jennifer Abruzzo, published a memo explaining what non-compete agreements violate Section 8(a)(1) of the National Labor Relations Act (“NLRA”). In her opinion, outside of limited circumstances, all non-compete interfere with Employee’s section 7 rights and, thus, run afoul of NLRA § 8(a)(1).
Section 7 protects employees’ right to self-organization, to form, join, or assist labor organizations, and to engage in concerted activities for mutual aid or protection.
To Abruzzo, a provision of an employment agreement violates 8(a)(1) if it “reasonably tends to chill employees in the exercise of Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement of employee rights”.
Non-compete agreements reasonably tend to chill employees in the exercise of Section 7 rights when “the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.” Abruzzo explains that denying access to employment opportunities chills employees from engaging in Section 7 activity because employees know they will have greater difficulty replacing lost income, employees’ bargaining power is diminished in labor disputes, and former employees are unlikely to reconnect at a local competitor’s, so are less likely to participate in concerted activity.
A desire to avoid competition from a former employee is not a legitimate business interest entitled to a special circumstances defense. Abruzzo also explains that employees cannot use non-competes to protect investments in training employees, as there are less restrictive means of protecting these interests – namely longevity bonuses. Similarly, non-competes should not be used to protect proprietary interests or trade secrets, as narrowly tailored workplace agreements can address these.
However, there remain certain non-compete agreements that do not violate the NLRA. Some non-competes still do not violate the NLRA as employees “could not reasonably construe the agreements to prohibit their acceptance of other employment”- namely, provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business or true independent-contractor relationships.
In sum, Abruzzo’s opinion has made using non-compete clauses a risky proposition. The maintenance of these contracts, and not their enforcement, are all needed to expose employers to unfair labor practice charges under 8(a)(1) of the NLRA and all the potential liability that comes with it (i.e., reinstatement, back pay, inability to replace employees permanently).
