Yesterday, National Labor Relations Board General Counsel Jennifer Abruzzo issued a memo claiming that the “proffer, maintenance, and enforcement non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act except in limited circumstances.”
Other labor and employment lawyers may forebode the end for most non-competes.
Me? I ain’t scared.
Before I explain why this news doesn’t rattle me, I’ll articulate Ms. Abruzzo’s position.
According to a press release, she posits that “overbroad non-compete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the National Labor Relations Act, which protects employees’ rights to take collective action to improve their working conditions.”
“Non-compete provisions reasonably tend to chill employees in the exercise of Section 7 rights when the 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 based on their experience, aptitudes, and preferences as to type and location of work,” said General Counsel Abruzzo.
But here’s the thing. Actually, here are the six things:
- Section 7 doesn’t apply to managers, supervisors, owners, officers, etc. These are the folks with non-competes against whom companies often want to enforce non-competes.
- Non-compete provisions restricting management and ownership interests in a competing business remain valid. The GC memo acknowledges this even for Section 7 (rank-and-file) employees.
- Non-solicitation agreements and trade-secret protections are ok too. The GC hasn’t taken the position that these violate Section 7. Indeed, the GC has already said that confidentiality clauses that are narrowly tailored to restrict the dissemination of proprietary or trade secret information based on legitimate business justifications may be considered lawful. Presumably, an agreement not to solicit customers wouldn’t chill the exercise of Section 7 rights. So businesses can protect themselves from unfair competition, subject to state law, with other restrictive covenants beyond non-competes.
- Non-competes chill potential employers. Courts generally uphold non-competes when businesses have a legitimate reason to enforce them. Notwithstanding, many would-be employers bristle at hiring employees with non-competition agreements for fear of getting smacked with a tortious interference claim — let alone the time, cost, and uncertainty of litigation against the potential new hire. The deterrent effect of the non-compete may hit long before the NLRB gets involved.
- You’ll probably win the race to the courthouse. Usually, a company seeking to enforce a non-competition agreement immediately seeks a preliminary injunction in court. Getting to the courthouse first seemingly moots any attempt by the NLRB to strike the non-compete. (Ostensibly, current employees could proactively report their employer to the NLRB first. Or perhaps they could involve the Board post-employment the same as if they sought declaratory relief in court before an employer seeks to enforce a non-compete. But how many would think to get the Board involved at all? Unless Google SEO does its job and they read this post.)
- Do you know any unionized Section 7 employees with non-competes in their collective bargaining agreement? Me neither.
The GC’s goal is to protect the rights of low- and middle-income workers. It’s worth repeating that employers should utilize non-competes in compliance with state law and only when they serve legitimate business interests. So, when they check those boxes, it seems unlikely that the NLRB’s position on these restrictive covenants will undermine enforcement efforts. Otherwise, if your business indiscriminately requires every employee to sign a non-compete agreement, you’re asking for problems.