Noncompete Pacts Violate Labor Law, Top NLRB Lawyer Says (1)

Noncompete agreements contained in employment contracts and severance agreements violate federal labor law except in limited circumstances, according to the National Labor Relations Board’s top lawyer.

Such pacts are illegal when workers could view them as blocking their ability to quit or change jobs, thus chilling their right to band together to improve their working conditions, NLRB General Counsel Jennifer Abruzzo said in a memo issued Tuesday.

That denial of access to employment opportunity undermines workers’ bargaining power during labor disputes, according to the memo. It also limits their job options if they’re fired for trying to unionize or participating in other workplace activism, Abruzzo said.

Abruzzo’s memo marks further regulatory overlap between the NLRB and the Federal Trade Commission, which took the first steps toward banning noncompetes in January when it issued a proposed rule. The two agencies announced an agreement last summer to share information and collaborate on training and outreach to combat anticompetitive practices that hurt workers.

About one in five Americans is bound by a noncompete agreement, which generally prohibits workers from accepting certain types of jobs after they leave their current employer, a 2022 Treasury Department report found. Those contracts are more prevalent in certain industries. For example, between 35% and 45% of tech workers are covered by noncompete clauses.

The memo signals that Abruzzo has started the process for potentially turning her view on noncompete agreements into NLRB precedent. She called for regional agency officers to submit cases with arguably illegal noncompete agreements to a division in her office that decides whether to issue complaints in certain cases.

Abruzzo said in her memo she authorized a complaint targeting an allegedly unlawful agreement that forbids low-wage workers from getting a job with another company in the same business in the entire state for two years after separation. She didn’t provide any other specifics on that case.

The board must rule on the legality of noncompetes to cement binding precedent.

Protecting Collective Action

Abruzzo has already argued in a pending case that workplace rules violate labor law if they chill workers’ rights to collective action to improve job conditions, unless they’re narrowly tailored to address special circumstances. The NLRB uses a similar standard to judge the lawfulness of severance agreements.

In her memo, Abruzzo said offering, maintaining, and enforcing noncompete agreements violates labor law based on inhibiting workers’ protected concerted activities. She set forth several types of actions that could be stymied:

• threatening to resign or resigning as a group;
• seeking or accepting employment with a local competitor;
• soliciting coworkers to join a local competitor; and
• working at another company as part of a “salting” campaign to promote unionization.

Not all noncompetes run afoul of the law, Abruzzo said. Tightly crafted noncompete contracts could pass legal muster if there are special circumstances, such as a legitimate business interest in protecting proprietary or trade-secret information, she said.

But employers’ desires to avoid competition, retain workers, and protect investments in training probably won’t justify noncompete agreements, she said.

“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 middlewage workers who lack access to trade secrets or other protectible interests, or in states where non-compete provisions are unenforceable,” Abruzzo said.