On May 30, Jennifer A. Abruzzo, general counsel for the National Labor Relations Board (NLRB), issued new directives regarding the enforceability of non-compete agreements. Abruzzo’s memorandum contends generally that non-compete agreements interfere with employees’ exercise of rights under Section 7 of the National Labor Relations Act, which protects their “right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
In the memo, Abruzzo asserted broadly that “employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; employees’ bargaining power is undermined in the context of lockouts, strikes, and other labor disputes; and, an employer’s former employees are unlikely to reunite at a local competitor’s workplace, and thus be unable to leverage their prior relationships—and the communication and solidarity engendered thereby—to encourage each other to exercise their rights to improve working conditions in their new workplace.”
Abruzzo states that non-compete agreements have a “chilling” effect on employees’ exercise of their Section 7 rights. She claims that non-compete agreements will chill employees (1) “from concertedly threatening to resign to demand better working conditions,” (2) “from carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions,” (3) “from concertedly seeking or accepting employment with a local competitor to obtain better working conditions,” (4) “from soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity,” and (5) “from seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.”
While Abruzzo briefly mentioned the possibility of circumstances in which narrowly tailored non-compete agreements will be enforceable, she gave only two examples: first, non-compete “provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business,” and second “true independent-contractor relationships.” Abruzzo believes that neither “a desire to avoid competition from a former employee” nor business interests in retaining employees or protecting special investments in training employees are likely to justify overbroad non-compete provisions. Similarly, regarding proprietary or trade secret information, Abruzzo commented that these interests can be protected “by narrowly tailored workplace agreements.”
Those employers who are willing to take the risk of continuing enforcement of non-compete agreements must be mindful of potential damages. Abruzzo directed NLRB regions to “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.” While this is a nonbinding memorandum opinion, it demonstrates the most likely outcome if the NLRB decides such a case. Furthermore, it heightens the risk for employers who presently have non-compete agreements in place.
For assistance or answers to questions about this legal insight, please contact the authors or any member of the Steptoe & Johnson Labor Relations Team.