Employers Beware: Your Noncompete May Violate Federal Law

NLRB General Counsel: Most Noncompete Agreements Violate the NLRA

Many employers require employees to sign noncompete agreements before, during, or upon separation from employment in an effort to prevent direct competition and protect business interests. This long-standing practice faces increasing resistance from state legislatures, as well as federal agencies like the Federal Trade Commission. The National Labor Relations Board (NLRB) appears poised to join the effort to invalidate such agreements. According to Memorandum GC 23-08 issued by NLRB General Counsel Jennifer Abruzzo on May 30, 2023, most noncompete agreements violate employees’ rights under Section 7 of the National Labor Relations Act (NLRA) and should be deemed unlawful. The guidance applies to both union and nonunion workplaces.

Section 7 of the NLRA 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.” Recent NLRB decisions confirm that employees cannot waive these rights in individual contracts. (See Lake Effect’s prior blog on another NLRB decision and guidance on this issue.)

The General Counsel explains that most noncompete agreements threaten employees’ Section 7 rights because they:

  • Chill employees from concertedly threatening to and/or carrying out threats to resign in order to secure better working conditions.
  • Chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.
  • Chill employees from soliciting co-workers to go to work for a local competitor as part of a broader course of protected activity.
  • Chill employees from seeking employment to specifically engage in protected activity with other workers at an employer’s workplace.

The Memorandum specifies that an employer’s desire to avoid competition does not justify infringing on a former employees’ Section 7 rights. An employer’s interests in retaining employees and/or protecting investments in employee training are likewise insufficient to excuse the chilling effects of broad noncompete provisions.

General Counsel Abruzzo does narrow the scope of her prohibition in two ways. She concedes that noncompete agreements that restrict only an individual's managerial or ownership interests in a competing business may be lawful under the NLRA. She also notes that employers’ legitimate business interest in protecting proprietary or trade secret information can be addressed by narrowly tailored workplace confidentiality agreements that protect those interests. These specific confidentiality agreements thus continue to be lawful under federal labor law.

The NLRB General Counsel’s Memorandum is not binding law, but it directs field offices to scrutinize employee noncompete agreements and seek relief for employees subject to an “overbroad non-compete provision.” Considering this guidance, employers should anticipate increasing challenges to noncompete agreements and should carefully review employment agreements containing any noncompetition provisions. They should also review confidentiality agreements to ensure that they are narrowly tailored enough to withstand scrutiny. Your partners at Lake Effect can help you evaluate your agreements and monitor NLRB enforcement activities.

Lake Effect is here to answer all your questions about employment laws, regulations, and agency guidelines. We continue to monitor important legal and HR developments, as well as other information that could impact the workplace. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

NLRB Scrutiny Requires Review of Employee Agreements

Based upon the NLRB’s recent decision in McLaren Macomb (February 23, 2023) and related General Counsel Memorandum 23-05 (March 22, 2023), employers (whether unionized or not) should review severance and other employment agreements containing confidentiality, non-disclosure, or non-disparagement provisions to ensure compliance with the Board’s restrictive new standards.

In McLaren Macomb, the NLRB examined severance agreements offered to 11 employees who were permanently furloughed from a Michigan hospital. The NLRB concluded that offering employees severance agreements that contained broad confidentiality, non-disclosure, and non-disparagement provisions unlawfully interfered with their Section 7 rights under the National Labor Relations Act (NLRA). The Board reasoned that such provisions could limit employees’ rights to communicate with other employees, union representatives, and/or NLRB agents regarding workplace issues and labor disputes, rights which are central to the protections of the NLRA.

In General Counsel Memorandum 23-05, NLRB General Counsel Abruzzo provided additional guidance on the McLaren Macomb decision. The General Counsel’s memo confirmed that whether an employee actually signs a severance agreement containing overly broad confidentiality and/or non-disparagement provisions is irrelevant. The employer violates the NLRA simply by presenting employees with such an agreement. In addition, the memo clarified that the McLaren Macomb decision is retroactive and thus applies to agreements presented to employees before February 2023, although such actions are normally subject to a 6-month statute of limitations. The memo also states that the McLaren Macomb standard is not limited to provisions contained in severance agreements, but rather applies to any employer agreement or communication that implicates employees’ Section 7 rights. These would likely include free-standing confidentiality and non-disclosure agreements and could even include non-compete or non-solicit provisions in certain scenarios.

On the heels of this recent NLRB activity, employers are well-advised to work with employment counsel to review separation agreements, as well as other free-standing agreements and communications with employees. Employers should carefully consider whether confidentiality, non-disclosure, or non-disparagement provisions are truly necessary to protect their business interests. If deemed necessary, they will need to be extremely narrowly tailored to meet the NLRB’s stringent new standard. Your partners at Lake Effect are ready to help you with this important review process.

Lake Effect is here to answer your questions about compliance with federal, state, and local laws as they related to all employment agreements. We continue to monitor important legal and HR developments that affect employers. Please watch our blogs and emails for these important updates, as well as discussions of how compliance meets culture. To dive into these issues, contact us at info@le-hrlaw.com or 1-844-333-5253.

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