The General Counsel for the National Labor Relations Board (NLRB) issued a memo on May 30, 2023, to NLRB regional directors advising them to find that most non-compete agreements infringe on an employee’s Section 7 rights under the National Labor Relations Act (NLRA). Put simply, the General Counsel has determined that the use of non-compete agreements is in most cases a violation of the NLRA, and has therefore directed its regional directors to aggressively pursue unfair labor practice complaints implicating the use of non-compete agreements. This attack on the enforceability and lawfulness of non-compete agreements comes on the heels of the Federal Trade Commission’s (FTC) proposed rule (January 5, 2023) to prohibit employers from imposing non-compete clauses on workers—although the FTC has delayed its vote on the proposed rule until April 2024.
Does this attack on non-compete agreements apply to you? The answer is most likely “yes.” Section 7 of the NLRA—which generally provides employees the right to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection—applies to both unionized and non-unionized workforces. As a result, pursuant to the NRLB’s General Counsel’s memo, to the extent you utilize non-compete agreements within your workforce, whether unionized or not, you could be charged with an unfair labor practice for violation of Section 7 of the NLRA. With that said, Section 7 does not apply to independent contractors, managers, most supervisors, public sector employees, and some agricultural workers, so any non-compete agreements you have with these categories of workers should be free from scrutiny.
Why is the NLRB wading into these waters? The General Counsel has justified her conclusions by arguing non-compete agreements deny employees access to employment opportunities and chill employees from engaging in Section 7 activity. As examples, the General Counsel argues non-competes could potentially interfere with an employee’s ability to: demand better working conditions by concertedly threatening to resign; carry out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions; concertedly seek or accept employment with a local competitor to obtain better working conditions; solicit co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and seek employment, at least in part, to specifically engage in protected activity with co-workers. While many of these examples seem like a stretch, the NRLB General Counsel has at least offered some hypothetical situations to justify her position.
What impact does this have on other confidentiality and non-solicitation agreements? The General Counsel did concede an employer has a right to restrain an employee from misappropriating its trade secrets and other confidential and proprietary business information. As a result, confidentiality agreements that are narrowly tailored to prohibit the dissemination of this type of confidential information should be considered lawful under Section 7. It is less than clear, however, with respect to the lawfulness of non-solicitation agreements. While the memo only references “non-compete” agreements and appears to only cover agreements that prohibit an employee from working for a competitor, the General Counsel did list as an example that non-compete agreements negatively impact an employee’s ability to “solicit co-workers to go work for a local competitor.” Given this reference and the NLRB’s recent attacks on severance agreements, it is likely that “non-solicitation” agreements are or will be in the NLRB’s crosshairs soon.
What should you expect and do? The NLRB will likely begin investigating unfair labor practice charges asserted by unions or individuals related to the use of non-compete agreements. In light of this, to the extent you utilize non-compete agreements in your workforce you should: (1) review the agreements to determine if they have been entered into with non-management or non-supervisory level employees; (2) review the agreements to determine if the scope of the non-compete infringes on the employees’ Section 7 rights; (3) review the agreements to determine if they can be more narrowly tailored as to not violate the employees’ Section 7 rights; and, most importantly, (4) contact a member of Crowe & Dunlevy’s Labor & Employment Practice Group to help you through this review and to discuss the potential risks associated with your non-compete and/or non-solicit agreements.
For more information regarding the NLRB’s recently issued memo on non-compete agreements, please contact Adam Childers, Allen L. Hutson, or another member of the firm’s Labor & Employment Practice Group.