As discussed in prior Iowa Employment Law Insights articles, the National Labor Relations Board (NLRB) in McLaren Macomb addressed issues of the rights of employees to organize under Section 7, fundamentally limiting severance agreement terms relating to confidentiality and non-disparagement clauses as well as setting forth several other areas of concern.

Jennifer Abruzzo, general counsel for the NLRB, then subsequently issued a memorandum on March 22, 2023, expanding upon McLaren Macomb in relationship to these issues in severance agreements. That memo also references that the NLRB would carefully review noncompete clauses as they may also impact Section 7 rights.

On May 30, 2023, Ms. Abruzzo and the office of the NLRB general counsel, issued a new memorandum stating that non-compete agreements in most circumstances would be considered to “interfere with employees’ exercise of rights under Section 7 of the National Labor Relations Act...” 

May 30 NLRB Memo

This most recent memorandum provides five statements as to how the NLRB believes such agreements likely chill employees’ rights. The statements essentially say that a noncompete agreement would prevent an employee from seeking other local employment. Since employees would be prohibited from accepting employment from other local employers, it would be more difficult for employees to demand better working conditions and to engage in proactive work actions.

The memorandum indicates that noncompetition agreements may be acceptable if they are “narrowly tailored to special circumstances, justifying the infringement on employee rights” but does not provide guidance as to what these special circumstances may be.

However, the memorandum further notes, “It is unlikely an employer’s justification would be considered reasonable in common situations where overbroad, noncompete provisions are imposed on low-wage or middle-wage workers who lack access to trade secrets or other protectable interests…” This would seem to indicate that special circumstances may include access to trade secrets or other protected information as has been discussed in prior articles.

These statements, which are an expansion on both the McLaren Macomb case and the previous March memorandum are likely to put more focus on data privacy and protection, and other intellectual property issues, including work for hire and similar agreements. There may also be additional leeway for high-wage workers.

The Big Picture

At this point, multiple agencies are clearly stating that non-competes, confidentiality, and similar agreements are considered overly invasive for employee rights, particularly in circumstances where employees are low-wage workers or workers whose job creates little competitive advantage between companies. These statements by the NLRB, along with the pending FTC regulatory non-compete changes, proposed legislation at the federal level regarding workforce mobility (essentially banning non-competes), and continuing state action indicate there will be enormous pressure on employers to change employee contracting processes.

Non-competes will likely need to be used in a more limited and targeted manner and there should be a more comprehensive focus from employers on identifying and protecting data and trade secrets. 

Related Resources:

• Iowa Takes Another Step in Limiting Non-Competes
• Severance Agreements – Federal Implications
• The Sound of Silence: National Labor Relations Board Rules that Employers Cannot Offer Employees Broadly Worded Severance Agreements
• The Federal Trade Commission Says No to Non-Competes