In a memorandum released earlier this week, General Counsel for the National Labor Relations Board (NLRB) shared her opinion that many common forms of noncompetition agreements violate the National Labor Relations Act (NLRA). Although this memorandum isn’t binding law, if enforced, it would represent a sizeable shift in the NLRB’s overall stance regarding noncompetition agreements and should therefore give pause to any employers who require employees, particularly non-management or otherwise lower compensated employees, to sign these types of agreements as a condition of employment. Employers should also carefully review their position before taking action to enforce such an agreement that is already in place.
As background, Section 7 of the NLRA protects certain employee rights, including the right to “engage in…concerted activities for the purpose of collective bargaining or other mutual aid or protection.” Employers in union and nonunion workplaces alike are prohibited from engaging in any act that would reasonably tend to chill employees’ exercise of their Section 7 rights. In her memorandum, the NLRB’s General Counsel argues that requiring employees to sign noncompetition agreements produces such an unlawful chilling effect in most instances, since the employees who are subject to these agreements may, for example, have a more difficult time finding replacement employment if they’re terminated, which could reasonably dissuade them from engaging in Section 7 activities. Other reasons are offered in support of the General Counsel’s conclusion as well. Although the memorandum acknowledges that employers may, under limited circumstances, have legitimate business interests that justify the use of these agreements, such circumstances are not identified. The memo does, however, opine that “a desire to avoid competition from a former employee is not [such] a legitimate business interest.”
Although this news may, at first glance, appear to be a sweeping change, it should be noted that the General Counsel’s opinion, if ultimately enforced, would only apply to those employees who are protected by the NLRA. Although not mentioned in the memo, that means that it shouldn’t apply to supervisory employees, who generally have the greatest access to customers, other important contacts, trade secrets or other proprietary business information, the protection of which may make a noncompetition agreement more useful for employers. For these high-level employees, nothing is likely to change; however, in light of this new enforcement policy from the NLRB’s General Counsel, we would encourage employers to carefully consider: (1) any practice of having employees, particularly non-management and lower compensated employees, sign noncompetition agreements; (2) whether to enforce a non-compete agreement against a recently departed employee; and (3) whether your business would be better served by non-solicitation and/or non-disclosure agreements, rather than those restricting competition.
If you have any questions about how this development may affect your workplace, we encourage you to reach out to any of our professionals for specific guidance. Here at K|W|W, your workforce is our priority.