Many employers require noncompete agreements as a customary practice when hiring. Functionally, noncompetes prevent employees from leaving for a competitor or starting a competing business for a certain amount of time once their employment ends. Employers see these agreements as a way to shield their investment. Why should they spend time and energy training a new employee, only to have the effort turn into more competition?
Unfortunately, many of these noncompete agreements are drafted too broadly and place undue hardship on employees who offer no form of unique competition. As a result, noncompetes have been on the receiving end of a lot of public scrutiny. At the beginning of this year, the FTC proposed a rule that would effectively end noncompetes across the board. While the proposed FTC rule has a long way to go before becoming law, the National Labor Relations Board has decided to step in and voice their concerns surrounding noncompetes.
Jennifer Abruzzo serves as General Counsel and Chief Prosecutor for the NLRB. On May 30, 2023, she issued a memorandum signaling her intention to pursue these agreements more aggressively moving forward.
Abruzzo grounds her concern in the National Labor Relations Act. Particularly Section 7, which 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.” She holds that because noncompetes limit employees’ ability to change jobs, they limit engagement in five specific activities protected in Section 7, as listed below.
- The right for employees to collectively threaten to resign to demand better working conditions.
- The right for employees to act on collective threats to resign in order to secure improved working conditions.
- The right for employees to work together to seek or accept employment with a local competitor to obtain better working conditions.
- The right for employees to solicit their co-workers to go work for a local competitor as a part of a broader course of protected concerted activity.
- The right of employees to seek employment, at least in part, to specifically engage in protected activity with other workers at the new employer’s workplace.
Abruzzo sympathizes with employers’ desires to retain employees and protect their training investments. Nonetheless, she feels these interests are better addressed by things like longevity bonuses, which do not infringe on any employee rights. When working with our clients to minimize and prevent legal issues, we often discuss how investing in your team is a far better way to spend money — and time — than chasing them down after they leave.
However, Abruzzo does not contend that all noncompetes necessarily violate the NLRA. Most notably, noncompete agreements involving supervisors, managers, or true independent contractors do not fall within this new guidance because the NLRA does not govern them. Noncompetes that restrict only an individual’s ownership interest in a competing business, as well as those that are narrowly tailored and justified by special circumstances, also remain permissible.
Since the NLRB memo was released on May 30, 2023, it will take some time before we know exactly what practical effect the new guidance has. However, given the indication of increased scrutiny on noncompete agreements, it is a good idea to consult an employment lawyer before implementing one. To seek guidance, contact one of our experienced lawyers at Stanton Law. Most importantly, our counsel goes beyond the transactions of your contracts and agreements as we seek to provide practical business solutions that strengthen your team and help you prioritize what’s important.