In the wake of the decision of the National Council for Labor Relations in McLaren Macomb, which invalidated most confidentiality and non-disparagement clauses in several employment contracts (as discussed here and here), NLRB General Counsel Jennifer Abruzzo (the “GC”) issued GC Memorandum 23-08 on May 30 2023, announcing that, in its opinion, the provision, maintenance and enforcement of non-compete provisions violates Section 8(a)(1) of the National Labor Relations Act (the “Act”), except in very limited circumstances . This direct challenge to the legality of commonly used non-compete agreements mirrors the recent proposal by the Federal Trade Commission (“FTC”) regulation that would prohibit employers from imposing such agreements on their workers and follows the Board’s memoranda of understanding with the FTC and the Antitrust Division of the Department of Justice, both of which address the anticompetitive effects of noncompete agreements (discussed here).
The GC requests Regions to refer to the Advisory Division of the NLRB all cases involving non-compete provisions that are arguably illegal and suggests that Regions seek full relief for statutory employees who, due to their employer’s unlawful maintenance of a non-competition clause broad competition provision, may demonstrate that they have lost opportunities for further employment, even in the absence of further conduct on the part of the employer to enforce the provision.
GC’s view that most non-competitors will violate the law
The GC advances the new theory that most non-compete agreements it could could reasonably be construed by employees to interfere with the exercise of employees’ rights under Section 7 of the Act, because these agreements tend to deny employees “the ability to resign or change jobs, cutting off their access to other employment opportunities for who are qualified on the basis of their experience, skills and preferences as to the type and place of work”. This, according to the GC, prevents employees from exercising or engaging in their Section 7 rights because employees “know that they will have a greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions. ” The GC’s view is that most non-compete agreements undermine employees’ bargaining power in the context of lockouts, strikes and other labor disputes because former employees are unlikely to reunite at the workplace of a local competitor and, therefore, they are unable to leverage their previous relationships. The GC also believes that such agreements discourage employees from threatening to resign to demand better working conditions or making threats to resign or otherwise resign to secure better working conditions. The GC also believes that these agreements prevent union organizers, known as salts, from organizing workers in a workplace because they would be prevented from organizing by a competing target employer.
To reinforce its ever-expanding view of Section 7, the GC cited the Board’s recent decision to McLaren Macomb, 372 NLRB No. 58, slip op. at 4, 7 (2023), which concluded that non-disparagement and confidentiality clauses in termination agreements violate the Act, providing that “the ‘future rights of employees, as well as the rights of the public, may not be negotiated’ in a way that requires ‘tolerance of the future. . . concerted activities.’”
Exceptions to the non-compete ban found only in “special circumstances” under the GC’s view
In the GC’s estimation, non-compete provisions that are narrowly tailored to special circumstances that justify the violation of employees’ rights may not violate the law. While the precise boundaries of these “special circumstances” were not explained by the GC, the memo acknowledged that certain non-compete agreements cannot reasonably be construed to prohibit an employee’s acceptance of employment relationships under the Act and therefore are permitted, such as provisions that clearly only restrict the managerial or ownership interests of individuals in a competing business, or true and properly classified relationships of independent contractors. Likewise, employers are likely to be safe in limiting the dissemination of proprietary and confidential information, provided such provisions are strictly tailored and serve a legitimate business interest. Critically, a general desire to avoid competition from a former employee is no it will be a legitimate business interest that can excuse a non-compete provision and support a special circumstances defense. Likewise, commercial interests in retaining employees or protecting special investments in employee training will not justify non-competition, according to the GC.
main conclusions
While GC memo 23-08 does not carry the weight of the law, employers should expect to see their non-compete agreements (and other restrictive employee agreements) closely scrutinized by NLRB regional offices, with a corresponding increase in unfair labor practices. charges. Complaints are likely to start pouring in from various regions based on the GC’s view, and it is very possible that the Board will eventually adopt the GC’s position on the validity of non-compete agreements under Section 7 of the Act.
For those employers who do not wish to wait and see the approach, employers should consider reviewing any non-compete clauses and other restrictive clauses for non-supervisory employees with their employment lawyer and consider the business justification for such restrictive clauses and their general tolerance for risk. In addition, employers may want to consider implementing changes to their restrictive agreement practices to protect business interests, such as the GC’s suggestion to offer longevity bonuses for employee retention and investments in employee training, and strictly adapting workplace to protect property and/or trade secret information.