On May 30, 2023, the General Counsel of the National Labor Relations Board (“NLRB”) issued Memorandum GC-23-08 (“Memo”), informing the NLRB’s Regional Directors of her stance that many employee non-compete agreements violate the National Labor Relations Act (“NLRA”) because they interfere with employees’ exercise of their rights under Section 7 of the NLRA.
While the Memo is not binding law (which would need to come from the NLRB through rulemaking or caselaw), it reveals the agency’s willingness to challenge non-compete agreements through the unfair labor practice charge process. The Memo instructs regional offices to submit cases involving non-compete restrictions to the Division of Advice, which will evaluate whether complaints should be issued. This is significant because the General Counsel makes initial decisions about whether to issue complaints, and employers can reasonably expect to see additional complaints filed by the NLRB based on unfair labor practice charges in which employees or unions claim a particular employer’s non-compete agreement violates the Act.
The General Counsel’s heightened scrutiny of non-compete restrictions follows the reasoning in the NLRB’s recent decision in McLaren Macomb, 372 NLRB No. 58 (Feb. 21, 2023). In McLaren Macomb, the NLRB ruled that overbroad confidentiality and non-disclosure provisions in severance agreements for certain employees—and even the mere offering of severance agreements with such overbroad provisions—violated the NLRA. The NLRB concluded such provisions may “chill” employees in the exercise of their NLRA 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.”
Expanding upon the NLRB’s reasoning in McLaren Macomb, the Memo identifies five specific Section 7 rights that non-compete agreements put at risk:
- The right to concertedly threaten to quit to demand better working conditions, in that employees could deem such threats futile or fear retaliation for making them;
- The right to actually concertedly quit to obtain better working conditions;
- The right to concertedly seek or accept employment with a local competitor to obtain better working conditions, which the Memo says could include a sole employee working for a competitor as a “logical outgrowth” of prior concerted activity;
- The right to solicit co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
- The right to seek employment at least in part to engage in protected activity with other workers at an employer’s workplace, such as may be the case in union organizing efforts.
It is important to note that the Memo does not address whether the General Counsel would view non-solicitation agreements and confidentiality agreements the same as non-compete agreements if they are functioning in the same way as a non-compete agreement. Furthermore, the Memo does not define “overbroad” non-competition provisions, but it does reference agreements imposed on low or middle-wage workers who do not have access to trade secrets, meaning such agreements are more likely to be deemed unlawful under the NLRA.
The Memo does identify a potential exception to its general prohibition against enforcement of overbroad non-compete restrictions; specifically, where the non-compete restriction “is narrowly tailored to special circumstances justifying the infringement on employee rights.” For example, an agreement that clearly restricts only a worker’s managerial or ownership interests in a competing business, or true independent contractor relationships, could be enforceable and not in violation of the NLRA. However, the Memo notes that “a desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.” The Memo also notes that the General Counsel is committed to an interagency approach to restrictions on the exercise of employee rights, including limits to workers’ job mobility, such as information sharing and referrals to other agencies.
McMahon Berger will continue to monitor the General Counsel’s and the NLRB’s actions with respect to non-compete agreements. Employers should proceed with caution when seeking to enforce such restrictions, particularly those involving non-managerial workers, and consult with experienced labor counsel to minimize the risk of potential violations of the NLRA.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.