Hunton Employment & Labor Perspectives

National Labor Relations Board (“NLRB”) General Counsel Jennifer Abruzzo recently issued a memorandum announcing her broad opposition to non-compete agreements.  In GC Memo 23-08, Abruzzo set forth her belief that, “the proffer, maintenance, and enforcement of [non-compete] agreements violate Section 8(a)(1) of the Act.”  According to Abruzzo, overbroad non-compete agreements chill employees’ abilities to exercise their Section 7 rights because the provisions interfere with employees' ability to:

• Concertedly threaten to resign to secure better working conditions;
• Carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions;
• Concertedly seek or accept employment with a local competitor to obtain better working conditions;
• Solicit their co-workers to work for a local competitor as part of a broader course of protected concerted activity; and
• Seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.

In the General Counsel’s view, non-compete agreements infringe on employee rights and can only be justified if the provision is “narrowly tailored to special circumstances.”  The memo left significant ambiguity as to what will constitute a “special circumstance” in this context but gave two examples: “provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business” and “true independent-contractor relationships.”  Importantly, the NLRA’s protections extend only to non-supervisory employees, so management team non-compete agreements are likely not impacted by this announcement.

The memo makes clear that employer justifications for non-compete agreements will not be readily accepted, particularly if they are based on the employer’s desire to avoid competition from a former employee, to retain employees, or to protect special investments in training.  Further, the NLRB will be especially critical of non-compete agreements with low-wage or middle-wage workers who lack access to trade secrets, or in states where non-compete agreements are unenforceable.  While Abruzzo recognized an employer’s legitimate interest in protecting trade secrets and proprietary information, the memo suggests that those concerns are not appropriately addressed by non-compete agreements and can be addressed by “narrowly tailored workplace agreements”.

Moving forward, we anticipate the NLRB will scrutinize employee non-compete agreements with an eye toward prosecution.  GC Memo 23-08 signals that the NLRB General Counsel’s Office is soliciting test-cases from its many Regional Offices in an effort to advance the General Counsel’s views and change the law in line with the recent memo.  The current NLRB has an appetite for restricting employment agreements, as seen in its recent ruling that severance agreements with confidentiality provisions may violate employee rights.

Employers should review all non-compete agreements prior to implementation to ensure they are narrowly tailored and targeted to the proper population of workers.   Hunton Andrews Kurth will continue to monitor developments in this area.