The NLRB’s General Counsel Believes That Non-Competes Violate the National Labor Relations Act

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Patricia Tsipras

June 1, 2023 Download as PDF

On May 30, 2023, Jennifer Abruzzo, General Counsel of the National Labor Relations Board (NLRB), issued a Memorandum to all Regional Directors, Officers-in-Charge, and Resident Officers, outlining her view that the proffer, maintenance, and enforcement of non-compete provisions in employment contracts or severance agreements violate the National Labor Relations Act (NLRA), except under limited circumstances.

Based on the advice outlined in the Memorandum, the NLRB will argue that non-competes are unlawful because they have a chilling effect on employees’ exercise of their rights under Section 7 of the NLRA.  Generally, Section 7 of the NLRA protects employees’ rights to take collective action to improve their working conditions.  The General Counsel asserts that non-competes violate Section 7 because they interfere with employees’ ability to (1) concertedly threaten to resign to secure better working conditions; (2) carry out concerted resignations to secure better working conditions; (3) concertedly seek or accept employment with a competitor to obtain better working conditions; (4) solicit coworkers to work for a competitor as part of a broader course of protected concerted activity; and (5) seek employment to engage specifically in protected activity, including union organizing, with other workers.

The rationale, as outlined in the Memorandum, for believing that non-competes have these chilling effects is as follows:  Employees who sign non-competes know that they will have greater difficulty replacing their lost income if they are discharged for exercising their Section 7 rights; their bargaining power is undermined in the context of lockouts, strikes, and other labor disputes; and, if they cannot reunite at a competitor’s business, employees lose the social ties and solidarity that may lead to improvements in working conditions at their new workplaces.

The General Counsel concedes, however, that non-competes could be lawful if they restrict only managerial or ownership interests in a competing business; true independent contractor relationships; or where “special circumstances” exist.

Employer Takeaways

• If you use non-competes, read the Memorandum.  While the Memorandum is not law, it does highlight how the NLRB may prosecute the NLRA.
• The NLRA protects only non-managerial, non-supervisory personnel.  Thus, the advice outlined in the Memorandum would have no effect on non-competes with managers and supervisors – the employees most likely to sign such restrictions.
• Non-competes with low-wage earners and those employees without access to proprietary or trade secret information likely will not withstand scrutiny – in court or with the NLRB.

This newsletter is designed to provide one perspective regarding recent legal developments, and is not intended to serve as legal advice, nor does it establish an attorney-client relationship with any reader of the article where one does not exist.  Always consult an attorney with specific legal issues.