Noncompete agreements, which restrict a worker’s ability to work for a competitor, have come under increased scrutiny in recent years. As states continue to institute their own versions of comprehensive noncompete reform, many of which include limiting who can be asked to sign a noncompete agreement and other restrictions, more changes may be coming at the federal level that will impact U.S. employers in the near future.
Federal Agencies Are Taking a Stand
Earlier this year, the Federal Trade Commission (FTC) proposed a regulation that would severely restrict noncompetes based on their being anticompetitive. Not to be outdone, National Labor Relations Board (NLRB) General Counsel (GC) Jennifer Abruzzo recently issued a memo to staff around the country stating that noncompete provisions in employment contracts and severance agreements generally violate the National Labor Relations Act (NLRA).
In the memo, Abruzzo relies on Section 7 of the NLRA to support her view. Section 7 “protects employees’ right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”
Thus, the memo contends noncompetes are unfair labor practices in violation of the NLRA because they permit an employer to “interfere with, restrain, or coerce employees” in their right to exercise the guarantees given to them in Section 7.
Conflicting with Section 7 Protections
The memo gave the following five examples of rights protected under Section 7 that noncompetes may restrict:
- The right for employees to collectively threaten to resign to demand better working conditions;
- The right for employees to act on collective threats to resign to secure improved working conditions;
- The right for employees to work together to seek or accept employment with a local competitor to obtain better working conditions;
- The right for employees to solicit their coworkers to work for a local competitor as part of protected concerted activity; and
- The right of employees to seek employment to specifically engage in protected activity with other workers at the new employer’s workplace.
Currently, the memo is just guidance. Because Abruzzo serves as chief prosecutor for the NLRB, however, it represents enforcement guidance to NLRB staff—and the wider world—that she wants to prosecute and bring cases to the NLRB to give it an opportunity to issue decisions, rendering this view the law of the land.
Bottom Line
The GC’s memo breaks new ground because noncompetes hadn’t previously been viewed as a labor issue. But there are a few things to keep in mind about the memo:
- It’s not law (yet).
- It won’t affect noncompetes involving supervisors, managers, or true independent contractors because the NLRA doesn’t cover them.
- It doesn’t threaten noncompetes that restrict the ability to own a stake in a competitor.
- It probably doesn’t affect nonsolicitation agreements either.
When legally appropriate, noncompetes should be drafted narrowly to protect legitimate employer interests, not to try to restrict ordinary competition.
It has always been prudent to consult a competent employment lawyer before drafting a noncompete agreement. Now, it may also be prudent to consult a competent labor and employment lawyer.
Timothy F. Murphy is a partner at the firm Skoler, Abbott & Presser, P.C., in Springfield, Massachusetts, and can be reached at 413-737-4753 or tmurphy@skoler-abbott.com. Kelley B. Mantz is currently a law clerk with Skoler, Abbott & Presser, P.C.