On the heels of the Nationwide Labor Relations Board’s choice in McLaren Macomb, which invalidated most confidentiality and nondisparagement provisions in quite a lot of employment agreements (as we coated right here and right here), NLRB Common Counsel Jennifer Abruzzo (the “GC”) issued GC Memorandum 23-08 on Might 30, 2023, saying that, in her view, the proffer, upkeep, and enforcement of non-compete provisions violate Part 8(a)(1) of the Nationwide Labor Relations Act (the “Act”) besides in very restricted circumstances. This direct problem to the lawfulness of commonly-used non-compete agreements mirrors the Federal Commerce Fee’s (“FTC”) current proposed rulemaking that may ban employers from imposing such agreements on their employees, and follows the Board’s memoranda of understanding with the FTC and the Division of Justice’s Antitrust Division, each of which addressed the anticompetitive results of non-compete agreements (coated right here).
The GC requests Areas to undergo the NLRB’s Division of Recommendation all instances involving non-compete provisions which are arguably illegal, and suggests Areas ought to search make-whole reduction for statutory staff who, due to their employer’s illegal upkeep of an overbroad non-compete provision, can exhibit they misplaced alternatives for different employment, even absent extra conduct by the employer to implement the availability.
GC’s View That Most Non-Competes Will Violate the Act
The GC advances the novel concept that almost all non-compete agreements may moderately be construed by staff to intervene with staff’ train of rights underneath Part 7 of the Act, as a result of these agreements are inclined to deny staff “the power to give up or change jobs by chopping off their entry to different employment alternatives that they’re certified for primarily based on their expertise, aptitudes, and preferences as to kind and site of labor.” This, in line with the GC, chills staff from exercising or partaking in Part 7 rights as a result of staff “know that they’ll have better issue changing their misplaced revenue if they’re discharged for exercising their statutory rights to prepare and act collectively to enhance working circumstances.” The GC’s view is most non-compete agreements undermine staff’ bargaining energy within the context of lockouts, strikes, and different labor disputes as a result of former staff are unlikely to reunite at an area competitor’s office, and, thus be unable to leverage their prior relationships. The GC additionally believes such agreements discourage staff from concertedly threatening to resign to demand higher working circumstances or finishing up concerted threats to resign or in any other case resigning to safe improved working circumstances. The GC additionally believes these agreements chill union organizers, generally known as salts, from organizing employees at one office as a result of they might be precluded from organizing a competitor goal employer.
To buttress her ever-expanding view of Part 7, the GC cited the Board’s current choice in McLaren Macomb, 372 NLRB No. 58, slip op. at 4, 7 (2023) which discovered non-disparagement and confidentiality provisions in severance agreements to violate the Act, discovering “the ‘future rights of staff in addition to the rights of the general public will not be traded away’ in a way which requires ‘forbearance from future . . . concerted actions.’”
Exceptions to the Non-Compete Ban Solely Present in “Particular Circumstances” Underneath GC’s View
Within the GC’s estimation, non-compete provisions which are narrowly tailor-made to particular circumstances justifying the infringement on staff’ rights might not violate the Act. Though the exact bounds of those “particular circumstances” weren’t defined by the GC, the memorandum did acknowledge that sure non-compete agreements can’t moderately be construed to ban worker’s acceptance of employment relationships underneath the Act and are subsequently permissible, resembling provisions that clearly solely limit people’ managerial or possession pursuits in a competing enterprise, or true and correctly labeled independent-contractor relationships. Likewise, employers will possible be protected in limiting dissemination of proprietary and confidential data, as long as such provisions are narrowly tailor-made and serve a reputable enterprise curiosity. Critically, a basic want to keep away from competitors from a former worker is not going to be a reputable enterprise curiosity that may excuse a non-compete provision and help a particular circumstances protection. Likewise, enterprise pursuits in retaining staff or defending particular investments in coaching staff are usually not going to justify a non-compete, in line with the GC.
Though the GC’s memorandum 23-08 doesn’t carry the load of legislation, employers ought to count on to see their non-compete (and different worker restrictive covenant agreements) carefully scrutinized by the Regional places of work of the NLRB, with a corresponding uptick in unfair labor observe fees. Complaints will possible begin to problem from the assorted Areas primarily based on the GC’s viewpoint, and it is rather potential the Board will in the end undertake the GC’s place on the validity of non-compete agreements underneath Part 7 of the Act.
For these employers who don’t want to take a wait and see strategy, employers ought to think about reviewing any non-compete and different restrictive covenant provisions for nonsupervisory personnel with their employment counsel, and think about the enterprise justification for such restrictive covenants and their total tolerance for threat. As well as, employers might want to ponder implementing adjustments to their restrictive covenant practices to guard enterprise pursuits, such because the GC’s suggestion to supply longevity bonuses for worker retention and worker coaching investments, and to narrowly tailor office agreements to guard proprietary and/or commerce secret data.