The National Labor Relations Board (NLRB) General Counsel recently issued a memo regarding its position that non-compete agreements violate the National Labor Relations Act (NLRA) except in limited circumstances.
Importantly, the memo does not impact non-compete agreements entered into with supervisors. And the NLRB has not (yet) voiced an objection to non-solicitation or other similar agreements. So while the NLRB has joined the long and growing list of federal and state agencies objecting to non-competes, this will not likely have a major impact on the way you do business.
The memo states that a non-compete agreement is overbroad and violates the NLRA “if it reasonably tends to chill employees in the exercise of Section 7 rights unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights.” The memo explains that non-compete agreements that could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting access to other employment opportunities interfere with employees engaging in five specific types of activity protected under the NLRA: (1) employees’ right to threaten to resign to demand better working conditions; (2) employees’ right to carry out concerted threats to resign or concertedly resigning to secure improved working conditions elsewhere; (3) employees’ right to concertedly seek or accept employment with a local competitor to obtain better working conditions; (4) employees’ right to solicit their coworkers to go work for a local competitor as part of a broader course of protected concerted activity; and (5) employees’ right to seek employment to specifically engage in protected activity with other workers at an employer’s workplace (for example, union salting).
The memo also discussed several potential employer justifications for the need for non-compete agreements. An employer’s desire to avoid competition from a former employee is not a legitimate business interest that could support the use of a non-compete agreement. In addition, an employer’s business interests in retaining employees or protecting special investments in training employees are unlikely to justify an overbroad non-compete agreement. The memo notes that an employer may protect training investments by less restrictive means, such as by offering a longevity bonus. Moreover, the memo states that it is unlikely an employer’s justification would be considered reasonable where non-compete agreements are imposed on low-wage or middle-wage workers who lack access to trade secrets or other protectable interests, or in states where non-compete agreements are unenforceable.
Importantly, the memo states that not all non-compete agreements necessarily violate the NLRA. Non-compete agreements that are narrowly tailored to protect proprietary or trade secret information will remain legal. In addition, non-compete agreements that “clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent contractor relationships” will not violate the NLRA.
We recommend that employers review their non-compete agreements in light of this memo. If you have any questions about this Alert, we encourage you to contact your Shulman Rogers attorney for solutions and recommendations for addressing these issues.
