KMK Law Management Rights Blog

Employers seeking to enforce non-compete agreements against their former employees will face a new hurdle following the latest news out of Washington, DC. National Labor Relations Board (“NLRB”) General Counsel Jennifer A. Abruzzo, who is responsive for the investigation and prosecution of unfair labor practice cases and for the general supervision of NLRB field offices, released a memorandum today announcing her interpretation that many non-compete agreements violate the National Labor Relations Act (“NLRA”) and thus are not enforceable. She has directed NLRB field offices to submit cases involving non-compete agreements for further investigation.

While the NLRA is often thought of as pertaining to unionized workforces, many provisions of the act apply to all employers, regardless of union status. This includes Section 7 of the Act, which protects employees’ “right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.” It is thus a violation of the Act to interfere with an employee’s rights guaranteed under Section 7.

The General Counsel’s announcement today states that non-compete agreements can violate Section 7 rights where 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.” The memorandum argues that where employees know that they will have greater difficulty in replacing lost income due to a non-compete agreement, they are less able to exercise their statutory rights such as organizing to improve working conditions, are less able to exercise their bargaining power through lockouts or strikes, and are prevented from reuniting at a competitor’s workplace to encourage the further exercise of Section 7 rights. 

The announcement further identifies five specific types of activities protected under Section 7 which are allegedly threatened by non-compete agreements:

• Employees are prevented from threatening to resign to demand better working conditions, as they would be fearful of their ability to gain subsequent employment;
• Employees are prevented from following through with their threats to resign to secure improved working conditions;
• Employees are prevented from obtaining employment with a competitor to obtain better working conditions;
• Employees are prevented from soliciting their co-workers to work for a local competitor as a part of a broader course of protected concerted activity; and
• Employees are prevented from seeking employment and then engage in protected activity with other workers at the new employer’s workplace. 

As a practical matter, today’s announcement levies further uncertainty into the area of non-compete agreements. The Federal Trade Commission (“FTC”) has already announced a proposed rule limiting the applicability of non-compete agreements, but that proposal is still in the rulemaking process and will likely be challenged in the Courts before implementation. Here, the General Counsel’s memorandum simply announces her interpretation of the law—it is not a definitive decision of the NLRB which can only be handed down by the NLRB Board. Further, any decision of the NLRB Board interpreting rights protected by Section 7 of the NLRA can be challenged and potentially reversed by the Federal Courts. However, the General Counsel’s memorandum will nevertheless make enforcing non-compete agreements more difficult for employers.

First, where employers seek to enforce non-compete agreements through legal action, former employees may file a complaint with the NLRB and force employers to argue their case on two fronts—in Court, and through the administrative action. Some courts may be unwilling to grant relief to an employer where an action is pending with the NLRB, which would be more sympathetic to the former employee.

Next, employers will have a more difficult time in obtaining preliminary injunctive relief which is customarily sought in connection with enforcing a non-compete agreement. This type of relief prevents a former employee from competing during the duration of a lawsuit, and whether or not this relief is granted often signals whether an agreement is ultimately enforceable. However, one factor courts consider when deciding whether to grant a preliminary injunction is whether this relief would harm public policy. The General Counsel’s announcement, coupled with the FTC’s pending rule, provides a strong argument against enforcing non-compete agreements at the early stages of a lawsuit due to the changing public policy surrounding these agreements. Courts may be reluctant to grant an injunction which runs contrary to federal guidance.

Finally, the General Counsel’s memorandum states that employees may be entitled to make-whole relief where a non-compete agreement prevented employees from searching for or obtaining opportunities for other employment, “even absent additional conduct by the employer to enforce the provision.” Thus, even where an employer has taken no action to enforce an agreement, the very fact that one is in place may subject it to an investigation by the NLRB. The more aggressive an employer is at seeking to enforce non-compete agreements, the greater the chance that existing employees may file charges with the NLRB to preempt future attempts at enforcement. 

Given the recent focus on non-compete agreements, employers seeking to enforce these agreements against former employees or enter into agreements with existing employees should consult with a member of our Labor and Employment Group.