By Kristofor L. Hanson

Continuing a very aggressive employee- and union-friendly agenda, on May 30, 2023, NLRB General Counsel Jennifer Abruzzo sent a memo, GC 23-08, to all Regional Directors, Officers-in-Charge, and Resident Officers, setting forth her view that the offer, maintenance, and enforcement of non-compete provisions in employment contracts and severance agreements violate the National Labor Relations Act (NLRA) except in limited circumstances.

Though overbroad non-compete agreements are generally viewed as unlawful and subject to invalidation, the GC memo explains that within the context of the NLRA, overbroad non-compete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the National Labor Relations Act. Section 7 protects employees’ rights to take collective action and engage in protected activity to improve their working conditions. Specifically, the memo explains that such agreements interfere with employees’ ability to:

1. concertedly threaten to resign to secure better working conditions;
2. carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions;
3. concertedly seek or accept employment with a local competitor to obtain better working conditions;
4. solicit their co-workers to go work for a local competitor as part of a broader course of protected concerted activity;
5. seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.

“Non-compete provisions 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,” said General Counsel Abruzzo. “This denial of access to employment opportunities interferes with workers engaging in Section 7 activity in a number of ways—for example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”

The memo preserves limited circumstances pursuant to which non-compete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. Moreover, there may be circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights may be justified by special circumstances.

Although General Counsel memos are not binding on employers, they reflect the Board’s prosecutorial intent. Accordingly, all NLRB regional offices are required by the GC to submit cases concerning “arguably unlawful” non-compete agreements, as well as special circumstances defenses, to the NLRB’s Division of Advice. The memo directs NLRB regions to seek make-whole relief for employees subject to unlawful provisions who can show lost employment opportunities as a result of such provisions. Once complaints issue, the GC will seek to convince the members of the NLRB to adopt her theory that such provisions violate the Act.

Employers, whether unionized or not, should consult with experienced labor counsel to thoroughly assess non-compete and non-solicitation agreements and severance agreements in light of Section 7 and the GC’s memo.