Are Non-Compete Agreements On the Way Out?

By Tim Murphy - Skoler Abbott P.C.

June 15, 2023

Non-Competition agreements, which restrict workers’ ability to go to work for competitors, have come in for criticism, statutory reform, and outright bans in an increasing number of states. Earlier this year, the Federal Trade Commission entered the fray by proposing a regulation that would severely restrict non-competes on the basis that they are anti-competitive.

Not to be outdone, the federal National Labor Relations Board’s (“NLRB”) General Counsel Jennifer Abruzzo recently jumped aboard the anti-non-compete train when she issued a memo to staff around the country that non-compete provisions in employment contracts and severance agreements generally violate the National Labor Relations Act (“NLRA”). As General Counsel, Abruzzo serves as Chief Prosecutor for the NLRB, and so, this memo represents enforcement guidance to NLRB staff, and the wider world, that she wants to prosecute and bring cases to the NLRB so that it has an opportunity to issue decisions rendering this view the law of the land.

In the memo, Abruzzo relies on Section 7 of the NLRA to support her view. Section 7 “protects employees’ 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.” Thus, the memo contends non-competes are unfair labor practices in violation of Section 8(a)(1) because they permit an employer to “interfere with, restrain, or coerce employees” in their right to exercise the guarantees given to them in Section 7.  

The memo gave the following five examples of rights protected under Section 7 that non-competes may restrict: 1) the right for employees to collectively threatening to resign to demand better working conditions; 2) the right for employees to act on collective threats to resign in order to secure improved working conditions; 3) the right for employees to work together to seek or accept employment with a local competitor to obtain better working conditions; 4) the right for employees to soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and 5) the right of employees to seek employment, at least in part, to specifically engage in protected activity with other workers at the new employer’s workplace.   

Bottom Line:           

This memo breaks new ground as non-competes had not previously been viewed as a labor issue. But there are a few things to keep in mind about the memo: 1) it’s not law (yet); 2) it won’t affect non-competes involving supervisors, managers, or true independent contractors because the NLRA does not cover them; 3) it doesn’t threaten non-competes that restrict the ability to own a stake in a competitor; 4) it probably doesn’t affect non-solicitation agreements either.

As was always the case, non-competes, when legally appropriate, should be drafted narrowly to protect legitimate employer interest as opposed to just trying to restrict ordinary competition. It has always been prudent to consult a competent employment lawyer before drafting a non-compete agreement. Now, it may also be prudent to consult a competent labor and employment lawyer.

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