Feds’ war on non-compete agreements rages on: NLRB boss fires latest salvo

The move toward a federal ban on non-compete agreements inched forward with the issuance of a new government memo that says the use of these agreements usually violates the National Labor Relations Act (NLRA).

Jennifer Abruzzo, who is general counsel at the National Labor Relations Board, issued the memo.

Though she technically acts independently from the board, Abruzzo’s voice carries much weight because she essentially steers the course of the board’s enforcement activity.

And the new memo makes her position on non-competes clear: Except in limited circumstances, even the proffer of a non-compete agreement by an employer to an employee violates the NLRA.

What’s the problem?

Why exactly are non-competes an NLRA problem?

Abruzzo explains her position as follows.

Under the NLRA, employees have a number of enumerated rights. Those rights include:

• The right to self-organization
• The right to form, join or assist organizations
• The right to collective bargaining, and
• The right “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

No chilling allowed

An employment agreement provision violates the NLRA if it “reasonably tends to chill” the exercise of those rights, Abruzzo says, “unless it is narrowly tailored to address special circumstances justifying the infringement.”

Non-compete agreements fit this bill, Abruzzo continues, when employees can reasonably construe them to block their ability to move to another job they are qualified to perform. In other words, non-competes can violate the NLRA when they do precisely what they are designed to do.

The denial of access to other employment opportunities chills employees from engaging in NLRA-protected activity for several reasons, Abruzzo says. In this regard, she identifies three specific asserted problems:

• Employees know it will be difficult to replace lost income if they are discharged for exercising their rights under the NLRA
• The agreements undermine their bargaining power, and
• Former employees are unlikely to reunite at a local competitor’s workplace, thus inhibiting their ability to leverage prior relationships in a way that leads to improved working conditions at their new job.

5 non-compete agreement issues identified

Moreover, non-competes chill employees from engaging in five specific types of NLRA-protected activity, Abruzzo asserts. She says they chill employees from:

1. Acting together to threaten to resign or demand better working conditions.
2. Acting on concerted threats to resign or resigning to get better working conditions. On this point, Abruzzo acknowledges that current NLRB law does not even recognize an NLRA right to concertedly resign.
3. Acting together to seek or accept employment with a competitor in order to get better working conditions.
4. Soliciting co-workers to work elsewhere “as part of a broader course of protected concerted activity.”
5. Seeking employment to engage in protected activity with other workers.

The “proffer, maintenance, and enforcement” of non-competes thus generally violates the NLRA, the memo says.

Limited exceptions apply

Provisions that are “narrowly tailored to special circumstances justifying the infringement on employee rights” are permissible, the memo advises. But a desire to avoid competition from a former employee is not one of those circumstances, it says. And the protection of trade secrets or other proprietary information can be adequately addressed separately, it adds.

So just what non-compete agreements are still OK in the general counsel’s view?

Sometimes, Abruzzo explains, “employees could not reasonably construe the agreements to prohibit their acceptance of employment relationships subject to the [NLRA’s] protection.”

Examples include provisions that restrict only managerial or ownership interests in a competing business and independent contractor relationships.

In a not-so-helpful and somewhat circular further explanation, the memo says that “there may be circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.”

What does it all mean?

The big takeaway here is that the federal government’s attack on non-compete agreements is moving full steam ahead.

President Biden launched the federal assault on non-competes with a July 2021 executive order that encouraged the FTC to curtail their use.

In January of this year, the FTC moved forward on that directive, releasing a proposed rule that would broadly ban the use of non-competes. Following an extension, the public comment period for the rule ended on April 19.

An FTC vote on the final version of the rule is reportedly expected by April 2024.