Fresh off convincing the National Labor Relations Board (the Board) to declare unlawful confidentiality and non-disparagement provisions in severance agreements, the Board’s General Counsel, Jennifer Abruzzo, is setting her sights on noncompete agreements. In a May 30, 2023 memorandum, Abruzzo argues that, “[e]xcept in limited circumstances,…the proffer, maintenance, and enforcement of [noncompete] agreements” violate federal labor law.
Section 7 of the National Labor Relations Act (the Act) affords certain rights to employees, whether they are in a union or not. Those rights include to self-organize, to form, join, or assist labor negotiations, to collectively bargain, and “to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Abruzzo’s premise is that non-competes “tend to chill” employees from exercising these “Section 7 rights” because they “could reasonably be construed by employees to deny them the ability to quit or change jobs.” As a result, Abruzzo fears that employees subject to non-competes will have less leverage to improve the conditions of their employment.
Abruzzo gives several examples of where she believes non-competes are not justified, including to protect “special investments in training employees,” and, more generally, as applied to “low-wage or middle-wage workers who lack access to trade secrets or other protectible interest.” Abruzzo does leave room for “special circumstances” where non-competes might be enforceable, but her examples are scarce. A non-compete would be permissible, in Abruzzo’s view, if it restricts “only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships.” But Abruzzo appears to equivocate on traditionally accepted interests such as protecting proprietary or trade secret information, which Abruzzo writes, vaguely, “can be addressed by narrowly tailored workplace agreements that protect those interests.”
Abruzzo notes that she already issued a complaint alleging unlawful maintenance of an overbroad non-compete, so the Board likely will have occasion in the not-too-distant future to opine on the issue. Employers, whether unionized or not, should prepare for the Board to side with the General Counsel and evaluate their non-competes accordingly. If the Board adopts the General Counsel’s position, employees who are protected by the Act will have a new administrative path to challenge non-competes—at least until the political composition of the Board changes and it rewrites the precedents of its predecessor.
If you have any questions, please contact David Baron, Anne Patin, John Ryan or your primary Seward & Kissel attorney.