NLRB Attacks Non-Compete Agreements

Federal legislative change typically means Congressional debate and approval.  While the National Labor Relations Act (the “Act”) has been around since the 1930s, neither Congress nor the National Labor Relations Board (the “Board”) has ever sought to manage non-compete agreements through the Act.  Historically, the enforceability of non-compete provisions has been left to the States.

No longer.  President Biden’s choice for the Board’s General Counsel (“GC”), Jennifer Abruzzo, has now declared via a Memorandum that non-compete agreements generally violate the Act.[1]  GC Abruzzo unilaterally asserts that non-compete agreements unlawfully limit employment opportunities, and prevent employees from demanding, or threatening to resign in pursuit of, better working conditions.

Despite decades of Board silence and state law precedent to the contrary, Abruzzo opines that employer interests “are unlikely to ever justify an overbroad non-compete provision because U.S. law generally protects employee mobility.” Abruzzo is correct when non-compete agreements target employees with no access to trade secrets, or legitimate protectable interests.

Abruzzo is dead wrong when employees develop customer insight and/or good will solely because of opportunities that specific employers provide.  That’s why Nebraska, for example, has validated non-compete agreements for decades when employees have personal contact and actually conduct business with customers an employer is trying to protect.

Abruzzo is not banning all non-compete agreements. Managers and supervisors are often excluded from protection under the Act.  Also, provisions which restrict “managerial or ownership interests in a competing business, or true independent-contractor relationships” and other circumstances with a narrowly tailored non-compete agreement may be justified in special circumstances.  What exactly Abruzzo will consider permissible is not yet entirely clear.

A memo from Abruzzo does not a law make.  However, expect her to use the prosecutorial power of the Board to establish new legal precedent.  Whether this new standard holds up in federal court may take years to determine.

Meanwhile, employers are left to figure it out, and adapt.  It is time to carefully assess the drafting and necessity of non-compete agreements, particularly when used for rank and file employees with no meaningful access to trade secrets and/or customer relationships.