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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

June 29, 2023

NLRB General Counsel Issues Memo Targeting Noncompete Covenants: What Employers Need to Know

Jennifer Abruzzo, General Counsel for the National Labor Relations Board (NLRB), recently published a memo setting forth her opinion that the “proffer, maintenance, and enforcement” of noncompete agreements prohibiting employees from accepting other jobs or operating competing businesses violates Section 8 of the National Labor Relations Act (NLRA), except in limited circumstances.

While the NLRA itself is silent on the use of restrictive covenants, including noncompete agreements, Section 8 of the NLRA makes it unlawful for an employer to interfere with, restrain, or coerce employees in the exercise of their protected rights. These protected rights include, under Section 7 of the NLRA, an employee’s “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 protection.” Abruzzo opined that post-employment noncompete restrictions violate Section 8 of the NLRA because these covenants “reasonably tend to chill employees in the exercise of Section 7 rights” unless “narrowly tailored to address special circumstances justifying the infringement of employee rights.” 

Abruzzo indicates in her memo that overbroad noncompete covenants interfere with employees’ ability to: (1) concertedly threaten to resign to secure better working conditions, (2) carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions, (3) concertedly seek or accept employment with a local competitor to obtain better working conditions, (4) solicit their co-workers to go work for a local competitor as part of a broader course of protected concerted activity, and (5) seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.

Abruzzo did note, however, that in some cases noncompete agreements could be lawful, particularly if the terms of the agreement clearly restrict only managerial or ownership interests in a competing business or true independent-contractor relationships. That said, according to Abruzzo, a desire to avoid competition, in and of itself, is not a legitimate business interest for purposes of maintaining a special circumstances defense. Abruzzo further opines in her memo that business interests in retaining employees or protecting special investments in training employees are similarly unlikely to justify the use or enforcement of an overbroad noncompete covenant, and that employers may instead protect these interests by employing less-restrictive means, such as a longevity bonus.

Abruzzo’s memo is yet another example of the anti-noncompete trend we are seeing throughout the country. This is a hot topic among legislators, and many states have recently restricted or outright banned the use of noncompete agreements. Indeed, as we previously reported, New York State has joined the list of states (California, Colorado, Illinois, Maine, Maryland, Minnesota, New Hampshire, North Dakota, Oklahoma, Oregon, Rhode Island, Virginia, Washington DC, and Washington State) with proposed or enacted bills that would restrict the use of, and in some cases strictly prohibit, noncompete covenants. It should also be noted that the Federal Trade Commission (FTC) recently issued a proposed regulation that would prevent employers nationwide from entering into noncompete clauses with workers and require employers to rescind existing noncompete clauses. 

Employers should proceed with caution and consult with legal counsel when deciding whether to implement or enforce a noncompete covenant.

If you have questions regarding the content of this alert, please contact Bob Heary, Labor & Employment Practice Area chair, at rheary@barclaydamon.com; Rob Thorpe, partner, at rthorpe@barclaydamon.com; Martine Wayne, associate, at mwayne@barclaydamon.com, or another member of the firm’s Labor & Employment Practice Area.

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