In a memorandum released on May 30, 2023, the National Labor Relations Board (“NRLB”) General Counsel opined that noncompete agreements may violate the federal National Labor Relations Act (“NLRA”). In doing so, the General Counsel joins the Federal Trade Commission and a growing number of states in attacking the ability of employers to use these agreements.
Section 7 of the NLRA Act protects, among other things, the right of non-management employees to organize and to act together to improve working conditions. The NLRB General Counsel takes the position that noncompete agreements tend to chill an employee’s exercise of those rights. The General Counsel reaches this conclusion by maintaining that a noncompete agreement cuts off an employee from accepting work for which they are qualified based on experience, aptitude and preference as to type and location of work. Therefore, according to the General Counsel, an employee would be less likely to engage in Section 7 activity because they might not be able to find other work if they are discharged by their current employer for engaging in that activity. The General Counsel also believes that noncompete agreements would undermine the leverage of employees in the event of a strike or lockout and that they might prevent a group of employees from going to work for a new employer and exercising their Section 7 rights in the new workplace. Other Section 7 activity that the General Counsel describes as being negatively restrained by noncompete agreements includes an employee threatening to quit in order to obtain better working conditions or actually taking a job with another employer with better working conditions.
The General Counsel’s memorandum acknowledges that there might be limited legitimate reasons for noncompete agreements, such as the protection of trade secrets. Also, although not mentioned in the memorandum, supervisors are not protected by Section 7 and, therefore, a noncompete agreement with a supervisor would not implicate any of these concerns. Reading between the lines, the main thrust of the General Counsel memorandum would seem to be that noncompete agreements are problematic under the NLRA if required for rank-and-file workers who do not have access to trade secrets.
Whether you think this memorandum is a solution in search of a problem, or is in fact more than a theoretical exercise, it does serve to remind employers to be careful about using noncompete agreements indiscriminately. An employer should think about, and be able to articulate, the legitimate reason that a particular person or job position requires a non-compete.