On May 30, 2023, the National Labor Relations Board’s (NLRB) General Counsel, Jennifer Abruzzo, issued a memo on non-compete agreements. Her memo signals the beginning of an aggressive effort by the NLRB to eliminate non-compete agreements and to punish companies that rely upon them. Abruzzo’s memorandum was widely published throughout the agency. Under Abruzzo’s view, almost all non-compete agreements between employers and non-executive employees are unlawful under the National Labor Relations Act, also called the NLRA. Our friends at Boston Avenue Law PLLC dive deep into what this means below.
Who is the NLRB?
The NLRB is a federal agency created to safeguard the rights of employees to seek better working conditions, as well as to organize and/or join unions. They are also in charge of administering secret ballot union elections. The NLRB is a two-part agency led by a five-person board who acts as a judicial body, and a General Counsel who prosecutes regulatory violations.
Why did the General Counsel publish the Memo?
The General Counsel likely published the memo to the public for two reasons. First, the General Counsel seeks to scare employers into voluntarily revoking their non-competes to avoid litigation with the NLRB. Risk averse companies will likely fall into line to avoid the costs of litigation. The General Counsel hopes this will lead to workers being freed from their non-compete obligations without ever having to test her theory in court. Second, the General Counsel is essentially advertising for plaintiffs with favorable cases so she can cherry pick the right set of facts to establish her interpretation of the law through legal action.
What should I do if I am bound by a Non-Compete Agreement?
The General Counsel is likely looking for employees who are bound by non-compete agreements that meet specific criteria. Suspect non-compete agreements will have most or all the following traits:
- The employee bound by the non-compete agreement will not be an executive, such as a CEO, CFO, Vice-President, etc., and will not be an independent contractor. If you file your taxes with a form W-2, you are likely an employee rather than an independent contractor.
- The non-compete agreement is overly broad or prevents an employee from working for competitors in a large area, such as an entire state or multiple counties.
- The non-compete agreement is unnecessarily restrictive and could be accomplished by some other mechanism such as a non-disclosure agreement or an agreement preventing employees from opening or investing in a competing business.
- The non-compete agreement lacks a specific, compelling purpose such as protecting trade secrets. The General Counsel has stated she does not believe retention concerns or protecting training investments are valid, compelling interests.
- The non-compete agreement has prevented the employee from taking another job or limited their job mobility in some way.
If you are bound by a non-compete agreement and believe the NLRB may be interested in your case, you should contact a qualified employment law attorney. These issues are often difficult to understand and have specific time limits barring late claims.
What should I do if I have an employee who is bound by a Non-Compete Agreement?
Employment laws can be complex and hard to understand. In the face of this move from the NLRB, the best course of action for employers is to join with legal counsel to review your reasons for having non-compete agreements, review who you are having sign them, and review the agreements themselves. Remember, even if the General Counsel is wrong about the law, litigating the issue can often take years and cost thousands and thousands of dollars. Additionally, the NLRA is not the only law regulating non-compete agreements, and you must comply with other applicable federal and state laws.
Local laws may also play a role.
A variety of jurisdictions ban the use of non-compete agreements with only a few narrow exceptions, including California, North Dakota, Oklahoma, and Washington D.C. Even with those bans in place, employers will sometimes have employees sign non-compete agreements in the hope the employee will honor the agreement even though it is not legally enforceable. Other employers will utilize a contract term specifying the contract is to be interpreted under the law of another state where non-compete agreements are legal. However, that doesn’t mean the agreement is enforceable. That’s a special topic for another article on another day; just be aware of the possible trap!
Other jurisdictions ban the use of non-competes unless the affected employee makes a certain minimum level of pay: Colorado, Illinois, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington. Iowa and Kentucky limit non-competes in some professions, such as healthcare.
Non-compete agreements are legal contracts and should be drafted and interpreted carefully: if you are subject to a non-compete agreement, you should review your situation with an experienced employment lawyer before taking any steps to make a job change. If you are presented with one to sign, you should run it by legal counsel before signing.