The National Labor Relations Board has issued a memorandum asserting that noncompete agreements generally violate a worker’s right to engage in collective action to improve their working conditions, as protected under the National Labor Relations Act.

The memorandum, promulgated on May 30, 2023, falls in line with other state and federal actions intended to curb the use of noncompetes.

Rationale of the memo

In the memo, NLRB General Counsel Jennifer Abruzzo suggests that noncompete agreements may chill employees from exercising their Section 7 rights to take collective action. Per Abruzzo, “[T]he provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for.”

Specifically, noncompete provisions may interfere with employees’ ability to:

Concertedly threaten to resign to demand better working conditions.
Concertedly seek or accept employment with a local competitor to obtain better working conditions.
Solicit coworkers to go work for a local competitor, as part of a broader course of protected concerted activity, and
Seek employment with other workers.

Signal for the future

While the memorandum is not legally binding, it’s a clear signal as to how the NLRB General Counsel plans to pursue future cases. Abruzzo has encouraged the NLRB regional offices to advance cases that run counter to guidance in the memorandum. Once such a case is decided by the NLRB, it will create Board law.

As such, employers who intend to maintain noncompete agreements with NLRA-covered employees should prepare to face legal challenges. Furthermore, the memorandum suggests that employers found liable for violating the NLRA may face remedies, including lost earnings and benefits for job opportunities the employee could have received.

Abruzzo advises that NLRB regional offices “should seek make-whole relief for employees who, because of their employer’s unlawful maintenance of an overbroad non-compete provision, can demonstrate that they lost opportunities for other employment, even absent additional conduct by the employer to enforce the provision.”

Few exceptions

To be clear, the NLRA only applies to non-supervisory and non-managerial employees. Beyond that, however, Abruzzo acknowledges only limited exceptions such as provisions that “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.”

While the memo indicates there may be other “special circumstances” that would warrant a noncompete, it doesn’t make clear what those circumstances would be. Rather, the memo provides examples of situations that fail to provide sufficient justification, such as:

An employer’s desire to avoid competition from a former employee.
To protect an investment in training.
To protect proprietary or trade secret information.

“U.S. law generally protects employee mobility,” Abruzzo said in the memo. As for training investments and trade secret protection, she asserts that employers can use other “narrowly tailored workplace agreements that protect those interests.”

State laws on noncompetes

Many states, including California, Oklahoma, Minnesota, and North Dakota have already banned most non-compete agreements. Other jurisdictions, as well as Washington, D.C., have barred their use for low-income employees. As such, employers should be aware of the specific laws in their state to ensure compliance.