On May 30, 2023, Jennifer Abruzzo, General Counsel of the National Labor Relations Board (NLRB), published a memorandum outlining her view that most noncompete provisions in employment and severance agreements violate the National Labor Relations Act (NLRA). Abruzzo’s memorandum marks the second time in recent months that an administrative agency has cast doubts on the future viability of noncompete agreements, as the Federal Trade Commission issued a proposed rule to ban noncompete provisions altogether in January.
Abruzzo’s memorandum argues that noncompete agreements generally violate the NLRA because they have a chilling effect on workers’ rights to engage in concerted activities for the purpose of collective bargaining protected by Section 7 of the NLRA. In Abruzzo’s opinion, noncompete agreements are often overbroad and unlawfully restrict activities protected under the NLRA because these agreements may restrict employees’ ability to threaten to resign or resign as a group, seek employment with a competitor, solicit coworkers to join a competitor, and work at another company to promote unionization. Abruzzo’s memorandum even goes as far as to suggest that merely presenting a noncompete provision chills an employee’s rights and violates the NLRA even without the company seeking to enforce the agreement.
Abruzzo’s memorandum also includes two limited exceptions in which noncompete agreements may be found enforceable: 1) agreements that only limit individuals’ managerial or ownership interests in a competing business and 2) agreements restricting independent-contractor relationships. The memorandum also leaves the door open for finding noncompete agreements permissible under “special circumstances,” but it does not give any indication as to what those circumstances may be.
Abruzzo’s memorandum is not legally binding on employers, but it does indicate that the NLRB will be taking up unfair labor charges challenging the enforceability and appropriateness of noncompete agreements. Also, although the NLRA generally applies to most private employers engaged in interstate commerce, Section 7 of the NLRA excludes managers, supervisors, owners, and other high-ranking employees – generally the types of employees businesses often seek to cover with noncompete agreements.
As General Counsel Abruzzo’s memorandum shows, noncompete provisions are under heightened scrutiny and should be reviewed carefully prior to even being offered to an employee. Employers are encouraged to carefully consider the circumstances and other methods of protecting their business interests prior to offering noncompete agreements to an employee. For more information or assistance on this topic, please contact Nicholas Golding, Jackson Treadway, Mark McAnulty or another member of the KDDK Labor and Employment Practice Group.