NLRB GC says noncompetes violate the NLRA

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Yep. You heard that right: The National Labor Relations Board General Counsel, Jennifer A. Abruzzo, says that noncompetes violate the NLRA.

Specifically, Ms. Abruzzo just issued a six-page memo outlining why she believes that 200-plus years of noncompete law violates the NLRA.

Although Ms. Abruzzo comes at this from a legal framework different from the FTC, it sure looks a lot like a similar result but without those pesky procedural safeguards that slowed down the FTC.

Companies need to take notice now. 

Here’s the gist of it according to Ms. Abruzzo’s memo:

[Noncompetes] interfere with employees’ exercise of rights under Section 7 of the National Labor Relations Act (the Act or NLRA). Except in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1) of the Act.

The memo basically builds off of a standard the Ms. Abruzzo has urged the NLRB to adopt.

That standard is essentially that “a provision in an employment agreement violates Section 8(a)(1) if it reasonably tends to chill employees in the exercise of Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights.” The memo then says that noncompetes “are overbroad, that is, they reasonably tend to chill employees in the exercise of Section 7 rights, when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.”

Ms. Abruzzo’s justifications include the following:

  • “First, they chill employees from concertedly threatening to resign to demand better working conditions.”
  • “Second, they chill employees from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions.”
  • “Third, they chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.”
  • “Fourth, they chill employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity.”
  • “Finally, they chill employees from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.”

Not surprisingly, the memo suggests that the NLRB is focused on low-wage and middle-wage workers:

It is unlikely an employer’s justification would be considered reasonable in common situations where overbroad non-compete provisions are imposed on low-wage or middle- wage workers who lack access to trade secrets or other protectible interests, or in states where non-compete provisions are unenforceable.

That’s no surprise given that the NLRA does not apply to supervisors, which is defined to mean “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

But don’t be too comforted by the above language. Ms. Abruzzo carves it back with the following: “I note that employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace agreements that protect those interests.”

But wait, there’s more: It’s not just noncompetes.

Given (among other things) the fourth justification above, i.e., that noncompetes “chill employees from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity,” it is hard to imagine how no-recruit agreements, fiduciary duty laws, and confidentiality/nondisclosure agreements (at least if they could be interpreted to limit job opportunities) would not also violate the NLRA under Ms. Abruzzo’s analysis.

Sound like the FTC’s functional test (i.e., the “de facto” noncompete test)? It sure sounds that way to me.

Anticipate aggressive enforcement.

Unlike the FTC’s rule, which was more of a yellow flag, this is a red flag and signals that the time to act is now. Indeed, the memo ends with the following:

In conclusion, Regions should submit to Advice cases involving non-compete provisions that are arguably unlawful under the analysis summarized herein, as well as arguably meritorious special circumstances defenses. In appropriate circumstances, Regions should seek make-whole relief for employees who, because of their employer’s unlawful maintenance of an overbroad non-compete provision, can demonstrate that they lost opportunities for other employment, even absent additional conduct by the employer to enforce the provision. In this regard, Regions should seek evidence of the impact of overbroad non-compete agreements on employees and, where applicable, present at trial evidence of any adverse consequences, including specific employment opportunities employees lost because of the agreements.

Steps to take now.

Although there may be additional memos clarifying this one and there will no doubt be legal changes, now is a good time – indeed, now is the time given this memo – to take a hard look at your noncompetes and other restrictive covenants, see who is bound by them, and, if you have non-supervisors bound by them, consider whether to rescind any of them.

You should also consider what other necessary steps may be warranted to protect your company’s information, customer goodwill, and workforce stability. This article identifies some of those steps.

And here I was going to write about the Government Accountability Office’s report on noncompetes, which now will have to wait. Spoiler alert: They don’t like noncompetes, but the report is actually pretty balanced.

 

*A huge thank you to my colleagues at my firm for working through these issues with me today.

 

* * *

Resources to help

Because we know how hard it is to keep up with the ever-changing requirements around the country, we have created the following resources (available for free):

We also have a 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).

We hope you find all of these resources useful.

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[1] This really should not be coming as a surprise; the NLRB and the FTC agreed to cooperate back in last July.

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