NLRB General Counsel Claims Non-Compete Agreements Infringe on Employees’ Rights

On May 30, National Labor Relations Board (NLRB) General Counsel, Jennifer Abruzzo, issued a memorandum claiming that non-compete agreements commonly used by employers in the United States violate employees’ rights under the National Labor Relations Act (NLRA). This aggressive position by the Board’s General Counsel is not yet binding law, and legal challenges are likely. 

Abruzzo asserts that such agreements restrict employees’ exercise of their rights under Section 7 of the NLRA, which protects employee freedom to self-organize, join labor organizations, bargain collectively, and engage in concerted activities for mutual aid or protection. Abruzzo believes that, unless narrowly tailored to address specific circumstances, the implementation and enforcement of non-compete provisions contravene the NLRA.

According to Abruzzo, non-compete agreements are overbroad when they deter employees from quitting or changing jobs by limiting their access to other employment opportunities for which they are qualified. The denial of access to job opportunities, in turn, “chills” employees from engaging in Section 7 activities because employees are less likely to exercise their rights to organize and improve working conditions when they fear losing income or face difficulties in finding alternative employment.  Additionally, non-compete provisions restrict employees’ bargaining power during labor disputes and prevent former employees from joining together at a competitor’s workplace to advocate for improved conditions, Abruzzo claims.

Abruzzo argues that non-compete agreements hinder five types of protected activity under Section 7:

1. 1. Threatening to resign to demand better working conditions
   2. Concertedly resigning to secure improved working conditions
   3. Seeking or accepting employment with local competitors to obtain better working conditions
   4. Soliciting co-workers to work for a competitor as part of concerted activity and
   5. Seeking employment to engage in protected activity, such as union organizing, with other employees at an employer’s workplace.

Abruzzo emphasizes that non-compete provisions must be narrowly tailored to justify any infringement on employee rights. A desire to avoid competition, retain workers, or protect training investments generally do not constitute legitimate business interests that can support a special-circumstances defense, and employers can protect proprietary information through more targeted agreements, Abruzzo argues. The memorandum highlights that non-compete agreements imposed on low-wage or middle-wage workers, lacking access to trade secrets or protectible interests, are unlikely to be considered reasonable.

But according to Abruzzo, not all non-compete agreements violate the NLRA, pointing out that some may be permissible, such as those specifically targeting managerial or ownership interests in a competing business, or true independent-contractor relationships. Abruzzo’s memorandum calls for regional agency officers to submit cases with arguably illegal non-compete agreements to a division in her office that decides whether to issue complaints in certain cases. 

In essence, Abruzzo’s memorandum is an instruction to initiate litigation against employers for so-called “overbroad” non-compete provisions. But Abruzzo’s opinion is not binding law—the NLRB must rule on the legality of non-compete agreements to create binding NLRB precedent, and even that is subject to challenge in the federal courts of appeal—and the anticipated shift will undoubtedly be subject to legal challenges. 

For now, the memorandum underscores Abruzzo’s view that non-compete agreements often interfere with employees’ rights protected under the NLRA, and it highlights the need for careful consideration and tailoring of such provisions to avoid infringing on employees’ Section 7 rights to engage in collective activities and improve working conditions. 

Please contact Austin Laurienzo or any member of Phelps' Labor and Employment team if you have questions or need compliance advice and guidance.