Human Resources

Newsletter June 2023

On May 31, the General Counsel for the NLRB issued a Memorandum detailing her position that noncompete agreements between an employer and employee generally violate the National Labor Relations Act, “NLRA.”

Under Section 7 of the NLRA, employees have the right to engage in protected and concerted activities related to their employment, such as: the right to join a union; and work with coworkers to discuss and attempt to better working conditions.

The General Counsel reaches the conclusion in the Memo that noncompetes are by their nature overbroad, and “reasonably tend to chill employees in the exercise of Section 7 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.”

Employers should note that the NLRA covers most private-sector non-supervisory employees, even those not represented by a union, making the Memo noteworthy even to employers without a unionized workforce.
The Memo itself does not have the force of law, but it is a clear indication that the NLRB will take this position in subsequent cases.

The Memo constitutes the latest attack by the current administration on enforcement of noncompetes across the United States and follows the Federal Trade Commission’s Proposed Rule issued on Jan. 5, 2023, which, if made final would invalidate nearly all noncompetes in the employment context.

The Memo does not necessarily require employers to take any immediate action. However, considering the increased scrutiny, employers utilizing noncompetes should review their use to make sure that they protect legitimate competitive business interests, which would probably only involve positions with access to sensitive business information. They also should be limited in duration and geographical scope.

It should be noted that the FTC’s and NLRB’s novel positions on these matters will undoubtedly be subjected to review by the courts.