Employee Non-Compete Agreements Are Illegal, NLRB Lawyer Says

The general counsel of the National Labor Relations Board issued a memo on Tuesday stating that overly broad non-compete agreements violate the National Labor Relations Act by barring workers from opportunities to get new jobs. The memo is the latest of multiple governmental actions to address the problem of non-competes, including a proposed ruling by the Federal Trade Commission earlier this year to ban them completely. 

Non-compete agreements are common clauses in contracts that workers sign when they first get hired. They usually state that when the worker leaves the company, they cannot start or join a competing company for a set time range or within a specific geographic region. Nominally, this is supposed to prevent the worker from sharing company secrets or contributing too much to competition for their former employer. 

In practice, they are used to control workers, keep wages down by limiting workers' employment options, and can be a tool of collusion between companies. Researchers estimate that roughly 30 million Americans have signed such clauses (about 1 in 5 workers), and say that most people don't remember signing them as they are often buried in employment contracts.

NLRB General Counsel Jennifer Abruzzo, however, has now stated that such agreements are “overbroad” and, with a few exceptions, violate Sections 7 and 8 of the National Labor Relations Act specifically because of how they impact unionization efforts. 

The memo is the second major determination made by Abruzzo this year. Earlier this year, she declared that nondisclosure agreements and nondisparagement clauses tied to worker severance are illegal and are retroactively void. 

Sections 7 and 8 of the National Labor Relations Act are most frequently associated with organizing. They guarantee workers’ rights “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,” and that an employer cannot punish their employees for doing so. 

Abruzzo’s memo continues to say that non-compete agreements chill employees from engaging in union organizing because they know they would have “greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize.” Abruzzo also says that workers likely won’t meet former colleagues at their new workplace, which means they can’t “leverage their prior relationships—and the communication and solidarity engendered thereby—to encourage each other to exercise their rights to improve working conditions in their new workplace.” Any organizing effort to improve the workplace and protect workers’ rights would have to start from scratch. 

“In addition, non-compete provisions that could reasonably be construed by employees to deny them the ability to quit or change jobs” the memo reads, referring specifically to workers’ rights to resign or threaten resignation to demand better working conditions—because of their non-compete provision, they wouldn’t have anywhere else to go. 

“Not all non-compete agreements necessarily violate the NLRA,” the memo states, giving as examples, “provisions that clearly restrict only individuals’ managerial or ownership interests in a competing business,” or “circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights is justified by special circumstances.” 

Abruzzo wrote that, “unless the provision is narrowly tailored to special circumstances justifying the infringement on employee rights,” an overbroad non-compete agreement violates labor law, and wanting to avoid competition is “not a legitimate business interest” for these purposes. Employers concerned about proprietary trade secrets can protect them with “narrowly tailored workplace agreements.”

This is the second major announcement regarding non-compete agreements this year, the first being the Federal Trade Commission’s proposal in January to ban them entirely. The FTC stated that non-compete clauses harm healthy competition in the labor and product markets and block entrepreneurship, and estimated that the rule could increase workers’ earnings by almost $300 billion per year. Such a ruling has not yet gone into effect.