5 ways non-compete agreements could raise red flags under the NLRA
Agreements limiting an employee’s ability to take a similar role with a different company could violate the National Labor Relations Act (NLRA), a memo from the general counsel of the National Labor Relations Board (NLRB) says.
A May 30 memo from General Counsel Jennifer Abruzzo, which applies to both union and non-union workplaces, states that non-compete agreements could chill an employee’s ability to exercise their rights to:
- Concertedly threaten to resign to secure better working conditions.
- Carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions.
- Concertedly seek or accept employment with a local competitor to obtain better working conditions.
- Solicit their coworkers to go work for a local competitor as part of a broader course of protected concerted activity.
- Seek employment, at least in part, to specifically engage in protected activity, including union organizing with other workers at an employee’s workplace.
Under Section 7 of the NLRA, employees can take collective action to improve working conditions. Section 8(a)(1) of the law prohibits an employer from interfering in the exercise of those rights.
Some non-competes are still OK
Because the NLRA does not apply to supervisors, the general counsel’s concerns would not apply to employees in supervisory positions.
Government employees, agricultural laborers, and independent contractors are also exempt from the NLRA.
In addition, in some cases, the general counsel notes that non-competes may be lawful if they:
- Clearly restrict only individuals’ managerial or ownership interests in a competing business,
- Are true independent contractor relationships, or
- Fall under special circumstances where a narrowly tailored non-compete agreement can be justified.
When are non-compete agreements used?
A company may ask an employee to sign a non-compete agreement as part of an employment contract when an employee is hired. It may also be part of a severance package when the employee leaves a company.
The non-compete agreement prohibits the employee from accepting certain types of jobs or operating certain businesses after their employment with a company ends.
Non-compete excuses likely a no-go for low wage workers
The general counsel’s memo notes that it is unlikely that an employer would be able use a reason such as training costs as a justification for a broad non-compete agreement. An employer could protect training investments in another way, such as with a longevity bonus, she notes.
“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 middle-wage workers who lack access to trade secrets or other protectible interests, or in states where non-compete provisions are unenforceable,” she said.
Key to remember: Employers should be aware that non-compete agreements with employees in non-supervisory positions are likely to raise issues under the NLRA, according to a memo released by the NLRB general counsel.