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Many Non-Compete Agreements Violate Federal Law

Source: Fisher Phillips, June 1, 2023

Employers should review their non-compete agreements now that the NLRB General Counsel announced that many of them violate federal labor law – regardless of whether you have a unionized workforce. General Counsel Jennifer Abruzzo’s May 30 memo was yet another broadside against employers, urging NLRB regional directors to find that many employer-mandated non-compete agreements infringe on employees’ rights under Section 7 of the National Labor Relations Act (NLRA). You should immediately examine your non-compete agreements for potential compliance concerns, understand the risks that are now presented by using such agreements, and decide whether to update your practices accordingly. Here are the answers to your top seven questions about this development.

1. Does this Memo Apply to Our Workforce?

The May 30 memo could apply to at least a segment of your workforce regardless of whether your company is unionized. That’s because General Counsel Abruzzo made the case that many non-compete agreements violate a section of the NLRA that applies to both unionized and non-unionized environments. Under the NLRA’s Section 7, employees at both unionized and nonunionized workforces have the right to collectively band together in an effort to improve the workplace.

Specifically, Section 7 guarantees employees “the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, or to refrain from any and all such activities.” In general, “concerted” means working together as a group to achieve a particular goal.

But not all workers have Section 7 rights. For instance, independent contractors, managers, most supervisors, public sector employees, and some agricultural workers are not covered by these NLRA protections.

2. What Does the Memo Say?

According to General Counsel Abruzzo, employers may commit unfair labor practices in violation of the NLRA by proffering, maintaining, or enforcing non-compete agreements. “Generally speaking, this denial of access to employment opportunities chills employees from engaging in Section 7 activity,” she opined.

The General Counsel provided the following examples of protected employee activities that non-competes could potentially interfere with:

  • Demanding better working conditions by concertedly threatening to resign;
  • Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;
  • Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
  • Soliciting co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
  • Seeking employment, at least in part, to specifically engage in protected activity with co-workers.

3. How Can Non-Compete Agreements Satisfy the General Counsel?

General Counsel Abruzzo said that non-competes could be lawful in some cases if they are “narrowly tailored to address special circumstances justifying the infringement on employee rights.” Perhaps in recognition of the NLRB’s lack of authority over independent contractors, managerial employees, and supervisors, she says that non-compete provisions could be lawful if they restrict “only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.”  

General Counsel Abruzzo also cites authority for the proposition that legitimate interests may include, for example, restraining employees from appropriating trade secret information and customer relationships to which the employee had access during employment. She also suggests that higher standards for justification of an agreement may apply where overbroad non-compete provisions are imposed on low-wage or middle-wage workers. 

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