NLRB General Counsel Aims to Outlaw Broad Non-Compete Provisions in Employment Contracts

June 7, 2023Legal Alerts

The top attorney for the National Labor Relations Board (NLRB) recently declared that most non-compete agreements violate labor laws by barring workers from opportunities to seek new jobs. The May 30, 2023 memo from NLRB General Counsel Jennifer Abruzzo is the latest to address the issue of non-competes. The Federal Trade Commission (FTC) issued a proposed ruling earlier this year to ban them completely.

Urging the NLRB to adopt the standard she first argued in Stericycle, Inc., Abruzzo states that non-compete provisions “could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting access to other employment opportunities” and chill the following five protected activities under Section 7 of the National Labor Relations Act:

  • Concertedly threatening to resign to demand better working conditions
  • Carrying out concerted threats to resign to improve working conditions
  • Concertedly seeking or accepting employment from local competitors for better working conditions
  • Soliciting co-workers to work for local competitors
  • Limiting a union’s ability to obtain work with multiple employers in a specific trade or geographic area

If the NLRB adopts the standard stated in Stericycle, Inc., a non-compete provision will violate Section 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 on employee rights.” This is similar to the standard recently adopted by the NLRB for severance agreements which makes a severance agreement unlawful “if its terms have a reasonable tendency to interfere with, restrain, or coerce employees in the exercise of their Section 7 rights.”

What Employers Need to Know

While memoranda from the general counsel are not binding law, they present theories that the general counsel will use to prosecute cases at the NLRB. The NLRB memorandum builds off of similar moves made by the FTC and the Department of Justice's Antitrust Division, which has agreed to help the NLRB enforce labor and antitrust laws. The most recent memorandum endorses this interagency approach.

Now that this memorandum has been issued, all NLRB regional offices must submit cases concerning non-compete provisions to the NLRB Division of Advice. Thus, this memorandum will lead to more scrutiny involving any non-compete provision in employment or labor contracts.

While most non-compete provisions under this standard will be illegal, some could still be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contract relationships. Thus, employers, whether unionized or not, should reach out to their Dinsmore attorney to assess their non-compete, non-solicitation, and severance agreements.