Written by Kate A. Wright and Susan Alig
In a memorandum issued on May 30, 2023, General Counsel for the National Labor Relations Board (NLRB) said many non-compete provisions in employment and severance agreements violate the National Labor Relations Act (NLRA) because they restrict employees’ rights to change employers or organize to seek better working conditions. Many employers require employees to sign non-compete agreements to protect a wide variety of legitimate, confidential business interests. The memo is part of a broader interagency effort to reduce the number of American workers who are not privy to trade secrets or confidential information yet are limited by non-compete agreements.
The NLRB memo does not require employers to take immediate, drastic steps. It is a statement of the Board’s interpretation of the law. According to the memo, an employee who files an unfair labor practice charge and proves they lost opportunities for other employment, even if the employer did nothing to enforce the agreement, may be entitled to remedies. However, an unfair labor complaint must come for a hearing before the five-member Board for it to have any authority. Even then, any decision is likely to be appealed to a court.
The General Counsel’s interpretation of the law carves out some exceptions. It recognizes that businesses may need to use “narrowly tailored” non-compete agreements to protect proprietary or trade secret information, but the memo notes business interests in retaining employees or protecting special investments in training are unlikely to ever justify a non-compete provision. Restrictions on employees’ “managerial or ownership interests in a competing business” or “true independent-contractor relationships” could be acceptable. Employers should avoid using non-compete agreements, especially with low- or middle-wage workers who don’t have access to confidential information, intended to prevent simple competition from employees. For advice on your particular situation, contact a Halbrook Wood attorney.