NLRB Says Non-Competes Violate “Employee” Rights
Tuesday, the General Counsel for the NLRB issued a memo to NLRB staff indicating that non-compete agreements violate rights protected by Section 7 of the National Labor Relations Act, except in “limited circumstances.” Just how limited? We’ll discuss that below. This federal agency action comes following the well-publicized FTC ban on non-competes that is slated to be voted upon next April. As a firm that regularly advises employees on the legal contours of non-competes, these actions will add another layer of argument and potential protection when for non-supervisory employees when they are examining and evaluating their legal risks and liabilities associated with choosing to leave their current employer for a competitor. Such agency actions tend to ebb and flow based on the politics of the administration, so whatever actions are taken could be reversed depending on the next administration in office. Moreover, such novel areas of enforcement for the NLRB will certainly be subject to judicial scrutiny, which could limit or nullify the actions of the NLRB.
In explaining her position, the General Counsel stated yesterday, “Non-compete provisions reasonably tend to chill employees in the exercise of Section 7 rights when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work,” said General Counsel Abruzzo. “This denial of access to employment opportunities interferes with workers engaging in Section 7 activity in a number of ways—for example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”
The General Counsel did note that non-competes could be lawful if they only restrict a worker from working in a managerial role, affect ownership interests or in independent-contractor relationships. Indeed, the NLRA definition of “employee” specifically excludes from its protections independent contractors or anyone employed as a “supervisor,” which it defines as:
any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.
Many non-compete agreements impact individuals in supervisory roles under this broad definition, and as such, for many of these individuals who are subject to non-competes, employers will likely argue they are not subject to the NLRB’s oversight because they are supervisors. As such, the NLRB’s attack on non-competes may not have as significant of an impact as suggested by the NLRB’s memo. However, non-competes are often applied to sales-related employees who are not really supervisors, though there is sure to be some argument on which sales employees also qualify as supervisors who have “responsibility to direct” other employees. Nevertheless, for these sales-related roles, the General Counsel’s position will arguably apply and could add a layer of protection for these employees who are often subject to non-competes.