NLRB General Counsel Determines Noncompete Provisions Violate The Law

The General Counsel of the National Labor Relations Board (NLRB), Jennifer Abruzzo, the agency’s chief prosecutor, has determined that the use of noncompete provisions in employment contracts and severance agreements violates the National Labor Relations Act (NLRA) in most circumstances. She intends to urge the NLRB to adopt her view of federal labor law and find that noncompete provisions limiting an employee’s ability to threaten to resign to obtain better working conditions or to change jobs violates the NLRA. The NLRB’s General Counsel has also directed the NLRB’s Regional Offices to refer all cases involving non-compete provisions to the General Counsel’s Division of Advice in Washington, D.C. for review and instruction on whether to initiate litigation and seek make-whole relief for employees because of their employer’s maintenance of an overly broad non-compete provision – even if the employer has not sought to enforce the provision. This development is important to all employers – not just those with unionized workforces.

In Memorandum GC 23-08, issued to the NLRB’s Regional Directors earlier today, May 30th, General Counsel Abruzzo writes that noncompete agreements “interfere with employees’ exercise of rights” under the law and that “[e]xcept in limited circumstances, I believe the proffer, maintenance, and enforcement of such agreements violate Section 8(a)(1)” of the NLRA. She opines that “non-compete provisions that could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting access to other employment opportunities chill employees from engaging in five specific types of activity protected under Section 7 of the Act.” Specifically, she believes these agreements interfere with employees’ ability to: (1) concertedly threaten to resign to secure better working conditions; (2) carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions; (3) concertedly seek or accept employment with a local competitor to obtain better working conditions; (4) solicit their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and (5) seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.

General Counsel Abruzzo has determined that noncompete provisions are proper only in “special circumstances” which does not include “a desire to avoid competition from a former employee,” an interest in “retaining employees or protecting special investments in training employees” or an interest in “protecting proprietary or trade secret information.” The General Counsel believes employers should address these interests by “less restrictive means,” such as longevity bonuses and the use of narrowly tailored agreements that do not restrict an employee’s ability to quit or change jobs.

The General Counsel’s extreme position is consistent with the Biden Administration’s determination to ban noncompete agreements. The Federal Trade Commission (FTC) has proposed a rule banning all employers from using noncompete clauses and to require rescission of existing noncompete restrictions. The comment period on the proposed rule ended in March 2023. Bloomberg Law is reporting that due to the number of comments received on the draft rule, the FTC will not vote on it until 2024.

Employers using noncompete provisions need to pay attention to these federal law developments and assess their risk tolerance for continued use of these clauses. New Nevada law also must be considered, including the 2021 amendments to NRS 613.195(3) prohibiting employers from using noncompetition covenants with employees who are paid solely on an hourly wage basis, exclusive of any tips or gratuities.

KZA’s experienced team of attorneys are ready to help you with this assessment. In relation to NLRB charges, employers need to remember that any employee can file an unfair labor practice charge with the NLRB, without regard to whether they are represented by a union or work in a unionized setting. Employers should expect NLRB agents to inquire into the presence of a noncompete restriction even when the facts of a charge are unrelated to a noncompete provision. 

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.