Non-Compete Developments: Uncovering the NLRB’s Decision and its Implications for Nonunionized Workforces

At the end of May 2023, general counsel for the National Labor Relations Board (“NLRB”) – Jennifer Abruzzo – issued guidance that noncompete provisions contained in many employment agreements violate the National Labor Relations Act (“NLRA”) unless these provisions are tailored to special circumstances that justify the restrictions.

What are the NLRB and NLRA?

Put simply, the NLRB is a federal agency responsible for safeguarding employee rights.

A common misconception of the NLRB is that it only has jurisdiction over unionized workforces. But that is not true. The NLRB has broader jurisdiction than just labor organizations or unions. They also oversee private-sector employers, nonprofits, employee-owned businesses, and even nonunion businesses.

In 1935, Congress passed the National Labor Relations Act (“NLRA”). In so doing, Congress made it clear that it was the policy of the United States “to encourage collective bargaining by protecting workers’ full freedom of association.”  The NLRA serves to protect workplace democracy and provide employees the right to seek better working conditions and representation.

What are Noncompete Provisions?  

Noncompete provisions in contracts can take on many different forms. But generally, they are a contractual term between an employer and a worker that prevent the worker from working for a competing employer or starting a competing business.  Employers generally use them to protect trade secrets.

And while they may protect a company’s trade secrets, they prevent workers from leaving jobs and decrease competition.

What is NLRB Guidance?

To be clear, NLRB guidance does not carry the force of law.  As a brief refresher, laws are passed by the government or derived from judicial precedent.  So, in this case, the guidance offered by the NLRB’s general counsel is meant only to inform those within the NLRB that, in her view, non-compete provisions in employment contracts and severance agreements violate the NLRA.

However, while the guidance is not binding, it presents a theory that could be adopted by the NLRB as a whole and used to prosecute cases that come before the NRLB.

What are the Implications?

While the current guidance from the NLRB general counsel is not binding, it is important to note that the NLRB is not alone in its reasoning.  There are a number of other agencies, like the Federal Trade Commission, that are classifying noncompete provisions in employment agreements as unfair methods of competition. Further still, there are a number of states, like California, that have even determined that such provisions are unenforceable as a matter of law.  And even those states that do allow them, only allow them under a limited number of circumstances.

And so, if employers have such clauses in their employment agreements, they should seriously consider reviewing and revising such language, and maybe even removing it altogether.  If they do not, the penalties could be more severe than just having the provision considered unenforceable.  Employers could face harsh penalties if they are deemed to be promoting unfair business practices.

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