NLRB GC Memo: Non-Competes Generally Violate Labor Law
The General Counsel of the National Labor Relations Board recently issued a memorandum to NLRB personnel concluding that, except in limited circumstances, the proffer, maintenance, and enforcement of non-compete provisions in employment contracts and severance agreements violate Section 8(a)(1) of the National Labor Relations Act (NLRA). NLRB Regions have been directed to submit cases involving non-compete provisions that are arguably unlawful under the analysis summarized in the memo.
Section 7 of the NLRA protects employees’ rights to engage in concerted activities for the purpose of collective bargaining or other mutual aid or protection. It is an unfair labor practice under Section 8(a)(1) for an employer to interfere with, restrain, or coerce employees in the exercise of those rights. The memo takes the position that non-compete provisions are usually overbroad and are reasonably construed by employees as denying them the ability to quit or change jobs. By limiting employees’ ability to explore employment opportunities, the memo argues: (i) employees know that they will have greater difficulty replacing their lost income if they are discharged for exercising their Section 7 rights, including their right to self-organize; (ii) employees’ bargaining power is undermined; and (iii) an employer’s former employees are unlikely to reunite at a competitors’ workplace, and, thus may be unable to leverage their prior relationships to exercise their Section 7 rights in their new workplace.
In light of these concerns, the memo sets forth a standard stating that “a provision in an employment agreement violates Section 8(a)(1) 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.” According to the memo, a desire to avoid competition from a former employee is not a “legitimate interest.” The memo also asserts that employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace agreements that protect those interests. On the other hand, permissible non-compete provisions might include those that clearly restrict only individuals’ managerial or ownership interests in a competing business, or restrict “true independent-contractor relationships.” The memo adds that a non-compete provision prohibiting independent-contractor relationships may nonetheless violate Section 8(a)(1) in the context of industries where employees are “commonly misclassified as independent contractors.”
The issuance of this memo follows an NLRB decision restricting the use of severance agreements with non-disparagement and non-disclosure terms, which WBK covered here.
