On May 30, 2023, the National Labor Relations Board (NLRB) General Counsel, Jennifer Abruzzo, issued Memorandum GC 23-08, stating her opinion that non-compete agreements violate the National Labor Relations Act (NLRA), except in limited circumstances. The memo explains that non-compete provisions can be considered unfair labor practices (ULPs) under Section 8(a)(1) because they may chill employees from engaging in protected activities under Section 7 of the NLRA. The memo does not apply to non-compete agreements offered to supervisory or managerial employees who are not covered by the NLRA.

The General Counsel's memo aligns with the Federal Trade Commission's efforts to ban non-compete agreements as an unfair restraint of trade, as well as her previous guidance to the NLRB in Stericycle, Inc. While the memo is not binding precedent, it signals increased scrutiny and potential enforcement actions from the NLRB.

Overbroad
The memo explains that non-compete provisions are overbroad, and therefore chill employees’ exercise of their Section 7 rights when the employees could reasonably construe the provisions to “deny them the ability to quit or change jobs by cutting off their access to other employment opportunities.”

Additionally, the memo identifies five specific types of protected activity non-compete provisions chill because of the difficulty they will face in replacing their lost income if they are discharged due to the restriction on finding other work:

1. Concertedly threatening to resign to demand better working conditions.
2. 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 co-workers to work for a local competitor as part of a broader course of protected concerted activity.
5. Seeking employment, at least in part, to specifically engage in protected activity with other workers at another employer’s workplace.

Limited Circumstances
The memo does acknowledge that there are limited circumstances in which non-compete agreements may not necessarily violate the NLRA. The following are examples of situations in which non-compete agreements may be acceptable:

• Supervisory or managerial employees not covered by the NLRA;
• Agreements that cannot be reasonably construed to restrict other employment, such as those only restricting managerial or ownership interests in competing businesses;
• True independent contractor relationships; and
• Agreements narrowly tailored enough such that the infringement on the employee’s rights is justified by special circumstances.

Further, the memo also identifies situations in which a non-compete agreement is not or is unlikely to be valid:

• The desire to avoid competition from a former employee;
• Retaining employees or protecting special investments in training; and
• Low- or middle-wage workers who lack access to trade secrets or other protectable interests.

Businesses may protect their legitimate interests in proprietary or trade secret information through narrowly tailored workplace agreements, such as confidentiality and trade secret agreements or non-solicitation agreements.

What does this mean for employers who currently have non-competes?
While the memo does not provide guidance as to what employers should do with existing noncompete agreements as the FTC’s proposed rule did, and the memo is not legally binding, employers that have current or former employees covered by noncompete agreements can consider taking the following steps:

• Identify covered employees. Identify the current and former employees who are covered by the NLRA and have a non-compete agreement in place.
• Review existing non-compete agreements. Carefully review their current noncompete agreements to determine if the agreements comply with the memo’s guidance. Work with legal counsel to assess whether the agreements are narrowly tailored to protect legitimate business interests and if they impose reasonable restrictions in terms of scope, geography, and time period.
• Determine plans for enforcement and communication. If the current noncompete agreements do not comply with the memo’s guidance, determine whether the employer will still seek to enforce the agreement. Seek legal advice prior to taking any enforcement actions. Since the memo contends that the maintenance of overbroad agreements is a ULP, discuss with your legal counsel whether it may be necessary to proactively communicate with covered employees and former employees that their non-compete agreements are void and/or will not be enforced.
• Identify alternatives. Explore alternative methods to protect legitimate business interests that may be less restrictive than non-compete agreements. For example, confidentiality and trade secret agreements, non-solicitation agreements, or offering incentives like bonuses to encourage employee loyalty and retention.

Final Takeaway
Seek legal counsel! Consult your legal counsel to help ensure compliance with the NLRA and other applicable laws. HEC members may contact their LR Consultant or call us at 808-836-1511, option 4, to discuss general labor relations topics.