June 1, 2023

NLRB Says Many Non-Competes Violate the National Labor Relations Act

NLRB General Counsel Jennifer Abruzzo recently issued a crucial internal memo outlining her stance on non-compete provisions in employment contracts and severance agreements. In the memo, Abruzzo states that such provisions generally violate the National Labor Relations Act (NLRA), except under specific circumstances.

Abruzzo asserts that overbroad non-compete agreements infringe upon employees’ rights under Section 7 of the NLRA, which safeguards their ability to collectively take action to improve working conditions. These agreements hinder employees from engaging in various activities, including threatening to resign collectively for better working conditions, concertedly seeking employment with local competitors to obtain improved conditions, and soliciting co-workers to join a local competitor as part of protected concerted activity.

According to the memo, overbroad non-compete provisions may unreasonably deter employees from exercising Section 7 rights, presumably when employees perceive these provisions as blocking their ability to quit or change jobs, thus limiting their access to alternative employment opportunities suitable to their qualifications, skills, and preferences regarding work type and location. The memo further notes that this denial of employment opportunities undermines workers’ ability to replace lost income in the event of termination due to exercising their statutory rights, weakens their bargaining power during labor disputes, and erodes the social ties and solidarity necessary for workplace improvements.

Abruzzo clarifies that there may be instances where non-compete agreements can be considered lawful, such as when they exclusively restrict managerial or ownership interests in competing businesses or valid independent-contractor relationships. She also acknowledges that limited circumstances could justify the infringement on employee rights by narrowly tailored non-compete agreements.

In addition, the memo highlights General Counsel Abruzzo’s commitment to interagency collaboration with other agencies to address restrictions on employee rights, particularly those impacting job mobility. The NLRB has previously established memoranda of understanding with the Federal Trade Commission and the Department of Justice’s Antitrust Division, both of which have expressed concerns about the anti-competitive effects of non-compete agreements.

General Counsel Abruzzo’s memo affirms the NLRB’s determination to protect employees’ rights to engage in concerted activities and take steps towards enhancing their working conditions. The memo emphasizes the need for employers to carefully consider the use of non-compete provisions to ensure compliance with the NLRA.

California has a strong public policy disfavoring employee non-compete agreements. Under California law, non-compete agreements are generally considered unenforceable and void, with limited exceptions.