On May 30, 2023, National Labor Relations Board (the “Board”) General Counsel Jennifer Abruzzo took yet another novel and aggressive position on standard employment fare in GC Memo 23-08.  In the Memo, General Counsel Abruzzo sets forth her opinion that non-compete provisions many employers use in typical employment agreements likely violate Section 7 of the National Labor Relations Act (the “Act”) in most circumstances. The Memo serves as a reminder to employers to carefully consider the use of non-competes and other restrictive covenants in an atmosphere of continued regulatory limitation.

Summary of GC Memo 23-08

The Memo expounds upon the notion that “U.S. law generally protects employee mobility” and the Board’s recent McLaren Macomb decision impacting severance agreements. General Counsel Abruzzo asserts that merely maintaining a non-compete, which is a contractual provision that prohibits employees from engaging in certain competitive behavior for a period of time after they leave their employer, could dissuade employees from engaging in behavior protected under Section 7 of the Act. Per the General Counsel, non-competes could dissuade protected activity even if the employer never seeks to enforce them.

The Memo outlines examples of protected activity that might be chilled by non-competes, including:

• Concertedly threatening to resign to demand better working conditions;
• Concertedly resigning to secure better working conditions;
• Concertedly seeking or accepting employment with a local competitor to obtain better working conditions with the current employer;
• Soliciting co-workers to work for a local competitor as part of a broader course of protected concerted activity; and
• Seeking employment to specifically engage in protected activity with other workers at an employer’s workplace.

By providing the above examples, General Counsel Abruzzo focuses on her belief that, because non-competes restrict employees’ ability to change jobs, when employees are subject to a non-compete, (1) employees know that they will have greater difficulty replacing their lost income by obtaining new employment if they are discharged for exercising their statutory rights to organize or improve working conditions; (2) employees’ bargaining power is undermined in the context of lockouts, strikes, and other labor disputes; and (3) an employer’s former employees are unlikely to reunite at a local competitor’s workplace and will be unable to leverage their prior relationships to encourage each other to exercise their rights to improve working conditions in their new workplace. These theories are novel; the Memo acknowledges that some of these situations have not yet been addressed by the Board, but by raising them in this way, General Counsel Abruzzo is announcing her intent to try and change the law by prosecuting employers for maintaining overbroad non-compete agreements.

The Memo does recognize that non-competes may be warranted and defensible in limited circumstances, including restricting managerial or ownership interests in a competing business, or in the case of true independent contractor relationships. Likewise, non-competes may be justified where “special circumstances” apply. While the Memo does not clarify what may constitute “special circumstances,” it hints that an employer’s interest in protecting proprietary or trade secret information may qualify if the provision is “narrowly tailored.” However, the Memo makes clear that “it is unlikely an employer’s justification would be considered reasonable in common situations where overbroad non-compete provisions are imposed on low-wage or middle-wage workers who lack access to trade secrets or other protectible interests.” Further, an employer’s business interests in retaining employees or protecting special investments in training employees are unlikely to ever justify an overbroad non-compete provision because, as the Memo suggests, employers may protect training investments by less restrictive means such as offering longevity bonuses. Ultimately, the Memo concludes by directing Board Regions to submit cases involving non-compete provisions that are arguably unlawful under the Memo’s analysis and considerations to the Board’s Division of Advice.

Takeaways for Employers

In analyzing GC Memo 23-08, there are several key takeaways for employers:

1. Employers should re-examine agreements containing non-compete provisions and other restrictive covenants with labor counsel to determine how best to protect competitive interests in light of the Memo’s assertion that merely maintaining a non-compete may be an unfair labor practice.
2. Employees who qualify as supervisors under the Act and certain management-level employees do not have Section 7 rights under the Act, meaning that non-compete agreements with those employees are not impacted by this Memo (though such agreements continued to be governed by state law). Employers should focus their review efforts on restrictive covenants impacting non-supervisory employees.
3. Employers should speak with labor counsel before attempting to enforce existing non-compete or non-solicitation agreements, as enforcement may cause an employee to seek review by the Board in the form of an unfair labor practice charge.
4. As we noted in our previous post on the topic, employers should be mindful of the General Counsel’s attempt to extend this rationale into other areas, such as non-solicitation and release agreements, and discuss those with legal counsel.
5. The Memo reflects a broader trend by other federal agencies and states to disallow non-competes. For instance, the Federal Trade Commission issued a proposed rule earlier this year banning the use of non-competes in employment agreements nationwide, and at the state level, non-compete provisions are disallowed generally in some jurisdictions, such as California and Minnesota (starting July 1, 2023), as unlawful restraints on trade.