NLRB GC’s Latest Guidance Expands Restrictions to Noncompete Provisions

At a Glance

• The General Counsel of the National Labor Relations Board warned employers on May 30, 2023, that many noncompete agreements will violate the National Labor Relations Act.
• The General Counsel maintained that noncompete provisions chill protected activity by limiting workers’ alterative employment opportunities and undermining workers’ bargaining power and leverage.
• It is important to note at the outset, that the General Counsel’s memorandum is not law, so no law has changed as a result of the guidance memorandum.

On May 30, 2023, the General Counsel for the National Labor Relations Board (NLRB or the Board), Jennifer Abruzzo, issued guidance regarding the lawfulness of noncompete agreements and provisions. The General Counsel’s latest guidance warns employers that, absent special circumstances justifying the restriction, most agreements not to compete will violate the National Labor Relations Act (NLRA). 

It is important to note at the outset, that the General Counsel’s memorandum is not law, so no law has changed as a result of the guidance memorandum. Rather, the memorandum is the General Counsel’s position on the lawfulness of noncompete agreements. For the law to change the NLRB would have to adopt the General Counsel’s reasoning in a decision, following an unfair labor practice charge against a specific employer. In addition, the NLRA only applies to employees that are covered by the NLRA; supervisors, management and executive personnel are excluded from such coverage and thus employers need not change noncompete agreements for this group of employees.

This is the second guidance memorandum issued by the General Counsel targeting common employment practices, following the Board’s McLaren Macomb decision. In that decision, as discussed in our February 2023 alert, the Board held that employers may not condition severance on an employee’s waiver of certain rights protected by the NLRA. The General Counsel’s first guidance focused on the lawfulness of confidentiality and non-disparagement provisions. For more information on the General Counsel’s prior guidance please see our March 2023 alert.

This time, the General Counsel took aim at post-employment noncompete agreements. According to the General Counsel, any noncompete provision that can be reasonably interpreted by an employee to prevent the employee from quitting or changing jobs that the employee is otherwise qualified for is overbroad and unlawful. Citing McLaren Macomb, the General Counsel observed that the Board already adopted a similar standard to review severance agreements and urged the Board to adopt her standard for noncompete agreements.

The General Counsel maintained that noncompete provisions generally chill protected activity by limiting workers’ alterative employment opportunities and undermining workers’ bargaining power and leverage. Specifically, she identified five types of protected activity that she claims are chilled by noncompete agreements:

• Making concerted threats to resign
• Carrying out concerted resignations
• Concertedly seeking or accepting employment with a local competitor
• Soliciting coworkers to go work for a local competitor as part of a larger course of protected activity
• Seeking employment to specifically engage in some concerted activity (i.e., salting)

The General Counsel continued that “the proffer, maintenance, and enforcement” of any noncompete agreement deemed overbroad under her proposed standard will be considered a violation of the NLRA by her office. Moreover, the traditional business justifications which have long been accepted by courts in determining the lawfulness of a noncompete agreement, such as retention concerns and protecting training investments, are insufficient in the General Counsel’s view. She argued that there are alternatives to protect these interests such as offering retention and longevity bonuses that do not infringe on any NLRA-protected rights.

Although most noncompete agreements would not pass muster under the General Counsel’s proposed standard, she noted that not all noncompete agreements are per se unlawful. Rather, according to the guidance, a lawful noncompete agreement must be narrowly tailored to the specific business interest needing protection. For example, noncompetes that restrict a worker's ownership interests in a competing business or protect proprietary and trade secret information may still be lawful.

The General Counsel’s memorandum constitutes a major assertion of NLRB jurisdiction over agreements that historically the Board had never viewed as touching Section 7 rights, let alone violating them. To that point, the General Counsel’s position has little support in precedent, and the only precedent cited in the memorandum are cases decided by the current NLRB, decided by the Obama-era NLRB, or are currently undecided and pending. 

This memorandum, as well as the Federal Trade Commission’s (FTC) proposed rulemaking banning most noncompete agreements, as discussed in our January 2023 and February 2023 client alerts on the FTC’s scrutiny of noncompete agreements, demonstrates the federal government’s concerted efforts to make unlawful or, at a minimum, deter employers from utilizing noncompete agreements. As such, employers should take this as an opportunity to review their current practices related to noncompete agreements to ensure they comply with applicable state and federal law.

In general, noncompete agreements should be narrowly tailored to a specific business interest with the restrictions no broader than needed to protect that interest. This requires a careful assessment of the duration, geographic scope and substantive scope of any post-employment restrictions including considering whether the business can protect its interest by other means such as confidentiality or non-disclosure provisions.

Given the intersection of several federal agencies cracking down on noncompete agreements as well as the constellation of new state laws regulating noncompete agreements, employers seeking to impose post-employment restrictive covenants on their former employees should seek guidance from counsel. If you have any questions about the potential implications of McLaren Macomb, the NLRB General Counsel’s subsequent guidance, or any other regulation of noncompete agreements, please contact an attorney on Faegre Drinker’s labor management relations or employment mobility & restrictive covenants teams.