NLRB General Counsel Concludes Non-Competes Violate Section 7 Rights

posted by Neil E. Klingshirn | May 31, 2023 in Noncompetes/Trade Secrets

Non-competition agreements are under siege. Last year the Federal Trade Commission proposed a new regulation that largely bans non-competition agreements, legislation is pending in Congress that would do the same, and the General Counsel for the National Labor Relations Board today issued a Memorandum opinion concluding that non-compete agreements can violate the National Labor Relations Act (NLRA) by infringing on employees' rights under Section 7.

Section 7 of the NLRA protects employees' rights to organize, join labor organizations, bargain collectively, and engage in activities for collective bargaining or mutual aid. The General Counsel asserts that requiring non-compete agreements can constitute unfair labor practices under Section 8(a)(1) of the NLRA, which prohibits employers from interfering with, restraining, or coercing employees in the exercise of their rights guaranteed in Section 7.

According to the General Counsel, non-compete agreements can "chill" employees' exercise of Section 7 rights by cutting off their access to other employment opportunities. This can discourage employees from advocating for better working conditions, undermine their bargaining power in labor disputes, and prevent them from improving conditions at a new workplace by leveraging relationships formed at a previous employer.

The General Counsel found that non-compete agreements could discourage employees from engaging in concerted activity in five specific ways. They are:

  1. Making concerted threats to resign.
  2. Resigning in concert with others.
  3. Seeking employment with a competitor.
  4. Soliciting co-workers to work for a competitor.
  5. Seeking employment to engage in protected activity.

However, the General Counsel conceded that not all non-compete agreements necessarily violate the NLRA. Some may be legally defensible if they are narrowly tailored to special circumstances that justify infringing on employee rights. For example, protecting proprietary or trade secret information could be considered a legitimate business interest that justifies a non-compete agreement. The General Counsel believes that business interests in retaining employees or protecting investments in employee training are unlikely to justify overbroad non-compete provisions.

The NLRB General Counsel memorandum opens a new front in the battle against non-compete agreements. Non-competition agreements are deeply ingrained in American commerce, howver, and are rooted in contract law that is governed by states, not the federal government. Despite the growing opposition to them, the battle against non-competition agreements is far from won.

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