NLRB: Noncompete agreements violate employees’ rights

The National Labor Relations Board doesn’t like overbroad things. In April, it invalidated an employer’s plan requiring employees to sign nondisparagement agreements in order to receive severance pay. It’s now issued a general counsel memo in which it concludes most noncompete agreements are overbroad and, therefore, unenforceable.

No union, no problem: Section 7 of the National Labor Relations Act applies to nonsupervisory employees, regardless of whether they’re unionized, when they’re discussing their wages, hours, and other working conditions.

What the general counsel says

General counsel memos provide policy guidance to regional NLRB offices. They aren’t regulations and by themselves don’t ban anything. Through this memo, the general counsel is seeking to shape future litigation by requesting that regional offices find a case and bring it to court.

According to the memo, unless narrowly tailored to address special circumstances, noncompete agreements violate employees’ § 7 rights by chilling employees from:

• Collectively threatening to quit as leverage for better working conditions.
• Carrying out their threat to quit to secure improved working conditions.
• Seeking or accepting jobs with local competitors to obtain better working conditions, either collectively or individually.
• Soliciting co-workers to work for a local competitor.
• Conducting union-organizing activities in the workplace.

The memo takes particular aim at employers trying to recoup training costs via noncompetes, noting there are other, less punitive measures employers could take, like offering retention bonuses. The CFPB is also interested in employers charging training costs to employees who terminate.

The memo says a non-compete agreement could pass muster if it protects trade secrets or other interests. But it also notes rank-and-file employees wouldn’t have access to this sort of information.

Status of non-compete agreements

The general counsel’s memo synchs nicely with the Federal Trade Commission’s proposed regulations banning noncompete agreements for most employees. Both would be preempted by more protective state laws. And both generally exclude managers, executives, and owners.

The FTC’s relationship to noncompete agreements is tenuous, despite arguing they impede competition, which definitely is in its wheelhouse. If the FTC’s regulations banning noncompetes become final, legal challenges are certain to follow.

The NLRB’s hold on noncompete agreements is equally tenuous, since the NLRA doesn’t mention one word about them. If the NLRB finds a suitable case it’s able to win at the trial level, it may not be successful at the appellate level.

But there are some key differences, too:

• The FTC’s regs would extend the prohibition to independent contractors; the NLRB’s jurisdiction is limited to nonsupervisory employees.
• The FTC’s regs would require employers to cancel existing agreements with current employees and contractors; the NLRB’s memo does not.
• The FTC’s regs, should they ever become final and withstand judicial scrutiny, would apply nationwide. The NLRB’s case-by-case approach theoretically could take longer to apply across the country.