Wednesday, May 31, 2023

NLRB General Counsel Jennifer Abruzzo just obliterated non-compete agreements (maybe)

In my view, the proffer, maintenance, and enforcement of a non-compete provision that reasonably tends to chill employees from engaging in Section 7 activity … violate Section 8(a)(1) unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights.

With that sentence from NLRB General Counsel Jennifer Abruzzo's just-published memo — entitled, Non-Compete Agreements that Violate the National Labor Relations Act — Ms. Abruzzo sent employment lawyers (including this employment lawyer) scrambling to understand exactly what she said and what she means.

Why do non-compete agreements violate employees' rights to engage in protected concerted activity under the National Labor Relations Act. According to Ms. Abruzzo, they chill employees from:

  1. Concertedly threatening to resign to demand better working conditions;
  2. Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;
  3. Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
  4. Soliciting their co-workers to go work for a local competitor as part of a broader course of protected concerted activity; and
  5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at an employer’s workplace, such as through union organizing.

In other words, in Ms. Abruzzo's opinion, most non-compete agreements are invalid under the National Labor Relations Act. 

All is not lost for employers. Ms. Abruzzo believes that nondisclosure agreements that protect trade secrets are still valid. The memo is also silent on agreement that prohibit the solicitation of customers, so we can presume they are also still valid. 

There are a few other non-competes that Ms. Abruzzo thinks are valid. Those that only restrict individuals' managerial or ownership interests in a competing business, or in true independent contractor relationships. Otherwise, in Ms. Abruzzo's view — absent undefined "special circumstances" — they are all invalid. 

This is the definition of hubris, or insanity, or fill-in-the-blank adjective. State law has always regulated non-compete agreements. The National Labor Relations Board never has regulated them, nor should it. Nevertheless, we should expect NLRB regions to start issuing complaints in non-compete cases to invalidate those agreements. I'll be shocked, though, if this interpretation survives judicial scrutiny when one of those complaints finally makes its way to a federal circuit court. So don't tear up your noncompete agreements just yet; we still have long way to go until we get to that point.