Noncompetes Under Fire from National Labor Relations Board

June 13, 2023

Jordan Jeter - Tonkon Torp LLP

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On May 30, 2023, National Labor Relations Board (NLRB) General Counsel Jennifer Abruzzo issued a memorandum taking aim at noncompetition agreements. Already subject to various levels of scrutiny at the state-level, Abruzzo’s unprecedented memorandum follows the Federal Trade Commission’s steps earlier this year to limit the use of noncompetition agreements nationwide.

In her memorandum, Abruzzo detailed the ways in which noncompetition agreements may violate Section 7 of the National Labor Relations Act (NLRA). Generally, Section 7 of the NLRA protects the rights of non-supervisory employees—both unionized and non-unionized—to self-organize; to form, join, or assist labor organizations; to bargain collectively through representatives of their choosing; and to engage in other concerted activities for the purpose of collective bargaining. Employers are prohibited from interfering with an employee’s exercise of Section 7 rights. Abruzzo has earlier taken the position that employers violate that prohibition by including terms in an employment agreement that reasonably tend to “chill” employees in the exercise of their Section 7 rights.

Generally, according to Abruzzo, noncompetition agreements chill employees in the exercise of their Section 7 rights when the provisions could deny employees the ability to quit or change jobs by cutting off their access to other employment opportunities for which they are qualified.

More specifically, Abruzzo identified five ways that noncompetition agreements chill employees from engaging in activity protected under Section 7 of the NLRA. According to Abruzzo, noncompetition agreements chill employees from:

1. Concertedly threatening to resign to demand better working conditions;
2. Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;
3. Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
4. Soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace.

In Abruzzo’s view, offering, maintaining, and enforcing noncompetition agreements potentially impacting Section 7 activity violates the NLRA unless narrowly tailored to special circumstances justifying the infringement on employee rights. Critically, she notes that a desire to avoid competition from a former employee is not a legitimate business interest that would support such special circumstances. Abruzzo further notes that businesses have other ways to protect business investments, such as through longevity bonuses and agreements protecting propriety and trade secret information.

For low-wage or middle-wage workers who lack access to trade secrets, Abruzzo warns, it is unlikely that an employer’s justification for a noncompetition agreement will be reasonable. As employers in Washington and Oregon know, that is a common restriction already placed on noncompetition agreements at the state level.

Despite all of the above, Abruzzo states that not all noncompetition agreements will violate the NLRA. For example, provisions that clearly restrict only individuals’ managerial or ownership interests may be permissible. The details of where the NLRB will draw the line remain unclear.

At this point, neither Abruzzo’s memorandum nor the FTC’s proposed rule require immediate action by employers, as neither are binding law. But it is a good opportunity for employers to strategize and consult with employment counsel on how to best move forward given the shifting landscape of noncompetition agreements.

This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about the issues raised here, please contact any of the attorneys in our Labor & Employment Practice Group, or the attorney with whom you normally consult.

About Tonkon Torp

Tonkon Torp LLP is a leading business and litigation law firm serving public companies, substantial private enterprises, entrepreneurial businesses and individuals throughout the Northwest.  For more information, visit tonkon.com.