The Law Makes for Strange Bedfellows – The NLRB and Noncompete Agreements 

By Howard Jackson

There is an old saying that politics makes for strange bedfellows.  The General Counsel of the National Labor Relations Board (“Board”), Jennifer Abruzzo, issued a Memorandum that combined two things in the law not often (if ever) thought of in the same breath – employee rights under Section 7 of the National Labor Relations Act (“Act”) and noncompete agreements.  

What Does the Memorandum Provide?

In short, Ms. Abruzzo believes that “the proffer, maintenance, and enforcement of such agreements violate Section 8 (a)(1) of the Act.”  Section 8 (a)(1) generally prohibits employers from interfering with, threatening or coercing employees in the exercise of rights granted to them under the Act.

Ms. Abruzzo submits that noncompete agreements in general tend to chill employees in their exercise of rights under this Act.  This is because if employees know they may have a more difficult time finding alternative employment if they are discharged. They will be less likely to exercise their right to work together mutually to organize a union or in some manner improve working conditions.

In the Memorandum, Ms. Abruzzo says there are five specific settings wherein noncomplete agreements chill employees in the exercise of their rights under the Act.  The first is that such agreements chill employees from “concertedly threatening to resign to demand better working conditions.”  Such threats could be rendered futile if the employees do not have access to other employment opportunities in their chosen field.

Second, and relatedly, noncompete agreements discourage employees from carrying out concerted threats to resign to obtain better working conditions.  Interestingly, Ms. Abruzzo notes that current Board law does not expressly recognize a right to concertedly resign under the Act.  She asserts, however, that “such a right flows logically from settled Board law.”

Third, Ms. Abruzzo says that noncompete agreements “chill employees from concertedly seeking or accepting employment with a local competitor to obtain better working conditions.”  In this regard the Memorandum goes further and says the protection would extent to “a lone employee’s acceptance of a job as a logical outgrowth of earlier protected concerted activity” by that employee.

Fourth, such agreements “chill employees from soliciting co-workers to go work for a local competitor as part of a broader course of protected concerted activity.”  In this situation, employees could hesitate to recruit others based on fear of retaliatory action by the employer whose agreements were being breached.  

Fifth, noncompete agreements “chill employees from seeking employment, at least in part, to specifically engage in protected activity with other workers” at a different employer’s workplace.  For example, an employee subject to a noncomplete may be discouraged from leaving to go to another employer in the industry where union organizing is being planned or is taking place where the employee wants to work for an employer who is represented by that union.

The Memorandum leaves open the possibility that some noncompete agreements could be justified where they are “narrowly tailored to special circumstances justifying the infringement on employee rights.”  The Memorandum does not provide examples of such circumstances, and does note that the desire to avoid competition, or to protect investment in training, would not justify a noncomplete provision.  In addition, the Memorandum notes that such agreements would not be reasonable when imposed on low or middle wage workers who do not have access to trade secrets or other protectible interests.

What Are the Implications?

First, note that the Act’s protections are for “employees” and not for “supervisors”.  In other words, nothing about the Memorandum would apply to a noncompete agreement with the Vice President of Marketing, for example.   The Act has a specific definition of “supervisor” and not everyone with that title will qualify.  An employer who wants to have a noncompete agreement with a first level supervisor would be well advised to analyze the position to determine if it in fact qualifies for supervisor status under the Act.

Noncompete agreements are generally not enforceable with respect to rank-and-file employees under many State laws.  This is certainly true in Tennessee, where an employer must establish a “protectible interest” to enforce a noncompete agreement.  In general, protectible interests can include access to trade secrets or similar information or the employee having become the “face of the company” to customers.  Accordingly, while the Memorandum spells out various ways that Ms. Abruzzo wants the Board to find noncompete agreements inappropriate under the Act, the reality is that such agreements are commonly not enforceable for the great majority of employees covered by the Act simply based on State laws.

There are other types of employee restrictive agreements that can be used for protection.  For example, where employees are exposed to trade secrets or other competitively sensitive information the employer can utilize a confidentiality agreement.  Of course, the Board recently found that certain types of confidentiality obligations in severance agreements were overly broad.  Nevertheless, where a confidentiality obligation is written so that it clearly applies to the sharing of competitively sensitive information it can be lawful.

Conclusion

The Memorandum is yet another illustration of just how broadly the General Counsel views employee protections under the Act.  It will not be surprising if the current Board accepts some of the views expressed in it as factually appropriate cases come along.  Nevertheless, employers retain the ability to use restrictive agreements for protection with respect to management and technical employees who have access to trade secrets and other competitively sensitive information.