The General Counsel for the National Labor Relations Board (“NLRB”) issued a landmark memorandum yesterday broadly opining that most non-compete agreements violate Section 7 of the National Labor Relations Act (“NLRA”) and directing the NLRB’s various regions to make challenging overbroad non-compete agreements an enforcement priority. After the NLRB’s sweeping decision this February in McLaren Macomb holding non-disparagement and confidentiality provisions in severance agreements are unlawful, the General Counsel then issued a guidance memorandum in March on McLaren Macomb that also signaled it was exploring whether non-compete, non-solicitation, and no poaching clauses also infringed on Section 7. Notably, yesterday’s memo argues its expansion to non-compete restrictions is specifically based, in part, on the NLRB’s McLaren Macomb decision.
In yesterday’s memo, the agency’s General Counsel seeks to upend longstanding precedent by opining that non-compete restrictions are overbroad and generally tend to chill employee Section 7 rights, unless narrowly tailored to address special circumstances justifying the infringement on employee rights. Specifically, the General Counsel identified five areas where employee Section 7 rights may be chilled: (1) concertedly threatening to resign to demand better working conditions, (2) carrying out on that threat, (3) concertedly seeking or accepting employment with a local competitor to obtain better working conditions, (4) soliciting co-workers to go to work for a local competitor as part of a protected concerted activity, and (5) seeking employment, at least in part, to specifically engage in protected activity with other workers.
The General Counsel argues that while an employer may have a legitimate business interest in a non-compete restriction, those interests are likely not reasonable for low-wage or middle-wage workers who lack access to trade secrets or other protectable interests. Nonetheless, the General Counsel indicates that there are certain narrow circumstances where non-compete restrictions may still be acceptable, for example, where the restriction limits the employee from being an owner or manager in a competing business, or where tailored to special circumstances for that specific employee.
The General Counsel’s memo is the second major attack by the federal government this year on the use of non-compete agreements in the United States. In January, the U.S. Federal Trade Commission (“FTC”) made waves by proposing a new regulatory rule that would bar virtually all non-compete agreements in the United States.
It is important to bear in mind the memo does not have the force of law and the NLRB has not yet adopted the expansive position taken by the General Counsel. That said, the memo does signal a significant shift in the General Counsel’s enforcement priorities. Notably, the General Counsel indicates their office has urged and will continue to urge the NLRB to adopt this position. While any type of ruling from the NLRB would likely only cover “employees” as defined by the NLRA, which excludes certain supervisors and managers, independent contractors, public sector employees, and some workers in other discrete categories, defining which employees are covered is not always easy.
In light of these developments and the frequently changing legal landscape for restrictive covenants under both federal and state law, employers should re-evaluate their restrictive covenant agreements and practices. If you have any questions on this announcement, need assistance developing policies and procedures to adjust for such changes, or have other questions regarding your workforce, please contact Betty Graumlich at firstname.lastname@example.org, Mark Goldstein at email@example.com, Noah Oberlander at firstname.lastname@example.org, or the Reed Smith lawyer with whom you normally work.