New Guidance Issued by the National Labor Relations Board Regarding Non-Compete Agreements
Madeline Harker, Law Clerk
On May 30, 2023, National Labor Relations Board (“NLRB”) General Counsel, Jennifer Abruzzo, sent a memorandum to all Regional Directors, Officers in Charge, and Resident Officers with guidance concerning non-compete provisions in employment contracts and severance agreements—specifically as to how such agreements may conflict with employee rights under Section 7 of the National Labor Relations Act (“NLRA” or the “Act”).[1]
Abruzzo’s Guidance to Employers, Generally
In her May 30, 2023 guidance memorandum, NLRB General Counsel Abruzzo explained that the proffer and enforcement of overbroad non-compete provisions may violate the NLRA. Specifically, Ms. Abruzzo stated that these provisions are unlawful if they chill employees from exercising their rights under Section 7 of the NLRA, which generally protects employees’ rights to take collective action in improving their working conditions and, importantly, is not limited to unionized employees.
Ms. Abruzzo specifically pointed out five forms of activity under Section 7 which may be curtailed by overbroad non-compete provisions. Such provisions may interfere with employees’ ability to: (1) concertedly threaten “to resign to demand better working conditions;” (2) carry out “concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;” (3) concertedly seek and accept employment “with a local competitor to obtain better working conditions;” (4) solicit their co-workers “to go work for a local competitor as part of a broader course of protected concerted activity;” and (5) seek employment “to specifically engage in protected activity with other workers at an employer’s workplace,” including union organizing. In short, Ms. Abruzzo advised that non-compete agreements may tend to chill employee rights under Section 7 when such provisions may reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities for which they are otherwise qualified.
Exceptions to NLRB Disfavor of Non-Compete Agreements
Ms. Abruzzo noted that there are limited exceptions where a provision would likely not violate the NLRA. While non-compete provisions intended to simply limit or prevent competition from former employees would likely not be justifiable under the NLRA, Ms. Abruzzo recognized that employers may have legitimate interests in protecting company trade secrets or other proprietary information, and non-competes may be valid under such circumstances when narrowly tailored to protect those interests.
Similarly, Ms. Abruzzo recognized that Section 7 concerns related to non-compete agreements may have little to no application in circumstances where the agreement is made as part of a purchase or sale of another business, or in the independent contractor context. But, Ms. Abruzzo opined that non-compete agreements made to protect investments in employee training or to otherwise promote employee retention are unlikely to justify an overbroad non-compete agreement—particularly since other less restrictive methods exist to promote employee retention (such as longevity bonuses).
How This Guidance Compares to Colorado’s Non-Compete Laws
Colorado already has some of the most restrictive laws governing non-compete agreements in the country and, generally, non-compete agreements in Colorado are void unless tailored for the protection of trade secrets learned by “highly-compensated employees.”[2] Colorado law does, however, permit agreements to recover expenses related to job-related education and training (with limitations), as well as non-compete agreements made in the course of the purchase and sale of a business.
Employer Considerations
While Colorado law already takes a very restrictive approach to non-compete agreements, the NLRB’s recent guidance sheds additional light on the potential pitfalls facing employers who seek to utilize non-compete agreements in the course of business, as Ms. Abruzzo has opined that such agreements may also run afoul of the NLRA. As always, Campbell Litigation is available to assist employers with these and other non-compete-related questions and issues.
[1] Memorandum from Jennifer A. Abruzzo, National Labor Relations Board General Counsel, on “Non-Compete Agreements that Violate the National Labor Relations Act” to All Regional Directors, Officers-in-Charge, and Resident Officers (May 30, 2023), https://www.nlrb.gov/news-outreach/news-story/nlrb-general-counsel-issues-memo-on-non-competes-violating-the-national.
[2] Colo. Rev. Stat. § 8-2-113.