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Noncompetes Violate Federal Labor Law, Says National Labor Relations Board's General Counsel

    Client Alerts
  • June 01, 2023

In the wake of the Federal Trade Commission’s recent proposal to void noncompetition agreements between employers and employees, another federal agency has joined the push to restrict the use of restrictive covenants in employment. Earlier this week, the National Labor Relations Board’s general counsel released a memo arguing that most noncompetes violate Section 7 of the National Labor Relations Act by interfering with employees’ rights to engage in protected concerted activity.

The memo does not categorically rule out the use of noncompetes in all circumstances. The NLRB counsel concedes that a narrowly drawn restriction aimed at special competitive circumstances may survive this test. Special circumstances are not defined or explained. However, the memo says broader use of agreements, especially with mid and lower level employees, violates the NLRA when used to prevent workers from leaving for a competitor. The NLRB generally does not have jurisdiction over managers and executives, and the memorandum would not impact noncompetes put in place with employees not legally eligible to join a potential bargaining unit.

The memo basically acts as an invitation for an aggrieved worker to file an unfair labor practice charge with the NLRB. While the board is not bound to follow the advice of its general counsel, the memo signals the probable position of the board majority on this issue. Any such decision would likely result in judicial review on the basis of the NLRB’s statutory authority to change long-standing business practices.

The general counsel’s memorandum serves as a good reminder for employers to review their noncompete agreements to make sure that (1) they are narrowly drawn to address specific competitive threats and (2) they are not used in a blanket manner with employees who likely do not have the ability to truly hurt the company if they leave to work for a competitor. For now, employers should monitor both the FTC and NLRB positions on noncompetes to determine whether they need to modify their current business practices.

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