There was great dismay among US employers earlier this year when the Federal Trade Commission (FTC) announced a possible rule that would make non-compete clauses illegal in most cases. While that process is still ongoing, the top NLRB lawyer on non-compete law also commented this week, stating that many restrictive clauses in employment contracts violate labor law.
The NLRB press release reads: “Today, Jennifer Abruzzo, General Counsel of the NLRB, sent a memo to all Regional Directors, Responsible Officers and Resident Officials setting out her view that the Offer, Maintain and Non-Enforcement Provisions in… ‘ Employment contracts and severance agreements violate the National Labor Relations Act, except in certain cases. The memo explains that non-competition clauses that are too broad are unlawful because they prevent workers from exercising their rights under Section 7 of the National Labor Relations Act, which protects the right of workers to take collective action to improve their working conditions. Specifically, these agreements affect employees’ ability to: 1. make concerted threats of resignation in order to secure better working conditions; 2. make concerted threats of resignation or otherwise make concerted threats of resignation in order to achieve better working conditions; 3. Seek or accept employment together with a local competitor in order to achieve better working conditions; 4. encourage their colleagues to work for a local competitor as part of a broader protected concerted activity; 5. seek employment, at least partially, specifically to engage in protected activities, including union organizing, with other workers in an employer’s workplace.”
The press release goes on to say that non-compete clauses could be lawful in certain circumstances: “General Counsel Abruzzo states that in some cases, non-compete clauses might be lawful where the provisions clearly limit only the management or proprietary interests of individuals in a competing company.” companies or genuine relationships between independent contractors. In addition, there may be circumstances where the violation of workers’ rights by a narrow non-compete obligation may be justified by special circumstances.”
The memo also states that the NLRB will coordinate enforcement with other agencies, including the FTC and the Department of Justice, regarding potential non-compete action.
This development may come as a bit of a surprise given that the National Labor Relations Act was passed nearly 100 years ago and has not yet been used as a basis for overturning standard restrictive covenants embedded in countless employment contracts across the country. However, this is in line with Abruzzo’s aggressive agenda and employers should be prepared for more landscape-changing labor law decisions from the agency in the coming months.
Conclusion: Non-competition clauses have come under fire on several fronts at the federal level. This is an area that all employers should keep an eye on.