On May 30, 2023, Jennifer Abruzzo, General Counsel for the National Labor Relations Board (“NLRB”), issued a memorandum arguing that noncompete agreements, in most circumstances, violate Sections 7 and 8 of the National Labor Relations Act (“NLRA”). This comes in the wake of the Federal Trade Commission’s recent proposal to implement a nationwide ban on noncompete agreements.
Noncompete agreements restrict employees from joining, operating, or owning a business that competes with their former employer, usually within a stated geographical area and for a specific time duration. Abruzzo argues in her memorandum that noncompete agreements violate Section 8 of the NLRA by hindering employees’ ability to exercise their Section 7 rights to “self-organiz[e], to form, join, or assist labor organizations, to bargain collectively . . . and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid.”
More specifically, in Abruzzo’s view, employees could “reasonably construe” a noncompete agreement as denying them the ability to quit or apply to another, preferred job for which they are qualified. These provisions chill employees from partaking in Section 7 activities, Abruzzo claims, “because employees know that they will have a greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize . . . [and] improve working conditions.” Moreover, noncompete agreements make an employer’s former employees less likely to “reunite at a local competitor’s workplace, and . . . leverage their prior relationships . . . to encourage each other to exercise their rights to improve working conditions in their new workplace.”
Abruzzo believes noncompete agreements specifically discourage employees from engaging in five types of activity protected under Section 7 of the NLRA:
- First, they prevent employees from collectively threatening to resign in an attempt to convince their employers to provide better working conditions. Undoubtedly, employees will “view the threats as futile given their lack of access to other employment opportunities.”
- Second, and perhaps duplicative of the first activity, noncompete agreements deter employees from actually carrying out the threat to resign or collectively resign.
- Third, they dissuade employees from “seeking or accepting employment” with a competitor in hopes of obtaining better working conditions.
- Fourth, they hinder employees from persuading their coworkers to quit, and “work for a local competitor as part of a broader course of protected concerted activity.” An employee would likely breach their noncompete if they were to partake in this action, and, as Abruzzo maintains, employees trying to persuade their co-workers may fear retaliatory action.
- Lastly, noncompete agreements “chill employees from seeking [additional] employment.” This chilling effect restricts employees from having the “mobility [that is] required to . . . engage in some forms of [protected activity],” such as union organizing.
Abruzzo argues that noncompete agreements violate Section 8(a)(1) of the NLRA unless they are narrowly tailored to a unique or “special” reason justifying the infringement on the employees’ rights. But Abruzzo then contends that one of the traditional justifications for noncompete agreements—“protecting special investments in training employees”—is unlikely to “ever” justify a noncompete provision. In her view, an employer could use less restrictive means such as offering a longevity bonus.
Abruzzo’s memorandum is a troubling continuation of the federal assault on noncompete agreements. This area of the law has traditionally been a concern of the states and, in North Carolina, largely left to courts to determine whether an agreement is “reasonable.” Abruzzo and other federal regulators seem convinced that noncompete agreements are hardly, if ever, reasonable.
Abruzzo’s memorandum does not carry the force of law, and it remains to be seen whether the NLRB or the courts will share her views on the topic. Nevertheless, employers should take note of these changing tides, and prepare for changes in employee relations. We will be watching closely.
Many thanks to summer clerk, Dante Jennings, for his contributions to this article.