Jun 13, 2023

NLRB General Counsel Declares Most Non-Compete Provisions Illegal Under the NLRA

On May 30, 2023, the General Counsel of the National Labor Relations Board (“NLRB”) issued a memorandum (the “Memorandum”) to all NLRB Regional Directors, Officers-in-Charge, and Resident Officers concluding that most non-compete provisions contained in employment agreements and severance agreements violate the National Labor Relations Act (the “Act”). The Memorandum provides that the General Counsel “believed” non-compete provisions interfere with non-supervisory employees’ exercise of their Section 7 rights under the Act, and “[e]xcept in limited circumstances, . . . the proffer, maintenance and enforcement of such agreements violate Section 8(a)(1) of the Act.”[1]

The General Counsel takes the position that non-compete provisions chill employees from (1) “concertedly threatening to resign to demand better working conditions”; (2) “carrying out concerted threats to resign”; (3) seeking or accepting employment with a local competitor; (4) “soliciting co-workers to work for a competitor”, and (5) “seeking employment to engage in protected activity[.]” In support, the General Counsel cited to the McLaren Macomb decision (See McLaren Macomb Client Alert dated March 24, 2023) that similarly ruled that non-disparagement and confidentiality clauses contained in severance agreements violate the Act because they chill employees’ “right to self-organization, to form, join, or assist labor organizations, to bargain collectively….”

The General Counsel did not specifically suggest a wholesale prohibition on all non-compete agreements under the Act, noting that some restrictions on competition may still be enforceable, such as those with “provisions that clearly restrict only individuals’ managerial ownership interests in a competing business; or true independent-contractor relationships” or “circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.” However, in a not-so-subtle reminder, the General Counsel specifically stated that if individuals are misclassified as being in an “independent-contractor relationship”, then the non-compete provision may “violate Section 8(a)(1).”

The Memorandum further provides that the NLRB will be coordinating enforcement with other agencies, including the Federal Trade Commission (“FTC”) (See FTC Client Alert dated January 11, 2023) and the Department of Justice (“DOJ”), to crack down on the misuse of non-compete agreements. NLRB Regions were instructed to alert the Division of Operations-Management about cases involving non-compete agreements that could potentially violate laws enforced by the FTC and the DOJ Antitrust Division for possible referral to those agencies. Although the Memorandum does not have the force of NLRB law, it strongly signals the General Counsel’s interpretation of it and the position the NLRB will likely adopt in future decisions.

If you have any questions regarding this proposed rule, please contact your Labor and Employment counsel at Smith, Gambrell & Russell, LLP.

[1] The Act, and therefore the General Counsel’s interpretation of the Act, does not apply to “supervisors”, defined as, among other things “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.”  Accordingly, even if the General Counsel’s interpretation of the Act is upheld, any prohibition of non-competes under the Act would still not apply to senior-level employees and officers.

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