On May 30, 2023, the National Labor Relations Board ("NLRB" or the "Board") released a memorandum providing employers of both unionized and private sector workplaces with important guidance about the lawfulness of non-compete agreements (the "Memo").
Specifically, the Memo takes the position that offering, maintaining and enforcing non-compete provisions in employment contracts and separation agreements violates the National Labor Relations Act except in limited circumstances.
The Memo explains that overbroad non-compete agreements are unlawful because they chill employees' ability to exercise their rights under Section 7 of the National Labor Relations Act to take collective action to improve their working conditions.
Specifically, such clauses 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; and (5) seek employment, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer's workplace.
The Memo did recognize the lawfulness of noncompete agreements under limited circumstances, including where such provisions clearly restrict only individuals' managerial or ownership interests in a competing business, or true independent-contractor relationships. Moreover, the Memo recognized that there "may be circumstances in which a narrowly tailored non-compete agreement's infringement on employee rights may be justified by special circumstances." However, such special circumstances do not include protecting special interests in training employees, and would not be applicable to low- or middle-wage workers who lack access to trade secrets or other protectable interests.
Employer Considerations
While the Memo is not binding legal precedent, the views contained in it will likely influence investigative and enforcement actions within the NLRB. Employers should thus consider reviewing and updating their template agreements including employment and severance agreements offer letters.
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