A key federal government agency in the Biden Administration has come out against the use and enforcement of non-competition agreements, except in limited circumstances.
In an official memorandum dated May 30, 2023, the National Labor Relations Board (NLRB) is opposing the proffer, maintenance, and enforcement of non-compete provisions in employment contracts and severance agreements, arguing that such contracts violate the National Labor Relations Act (NLRA).
According to a 2021 estimate, approximately 18.1 percent of American workers—roughly 28 million individuals—are subject to a non-compete agreement, including approximately 13.3 percent of workers earning less than $40,000.00 per year).
In the six-page memorandum, NLRB General Counsel Jennifer Abruzzo, a Biden appointee, sets forth her view that “overbroad” non-compete agreements are unlawful because they chill employees from exercising their rights under Section 7 of the NLRA, which protects employees’ rights to take collective action to improve their wages and other working conditions.
Section 7 protects employees’ “right 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.” It is an unfair labor practice in violation of Section 8(a)(1) of the NLRA for an employer “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.”
Ms. Abruzzo argues that these agreements interfere with employees’ ability to: 1. concertedly threaten to resign to secure better working conditions; 2. carry out concerted threats to resign or otherwise concertedly resign to secure improved working conditions; 3. concertedly seek or 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, at least in part, to specifically engage in protected activity, including union organizing, with other workers at an employer’s workplace.
“Non-compete provisions reasonably tend to chill employees in the exercise of Section 7 rights when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work,” said General Counsel Abruzzo.
“This denial of access to employment opportunities,” she stated, “interferes with workers engaging in Section 7 activity in a number of ways—for example, workers know that they will have greater difficulty replacing their lost income if they are discharged for exercising their statutory rights to organize and act together to improve working conditions; their bargaining power is undermined in the context of lockouts, strikes and other labor disputes; and their social ties and solidarity leading to improvements in working conditions at workplaces are lost as they scatter to the four winds.”
General Counsel Abruzzo stated, however, that in some cases noncompete agreements could be lawful if the provisions clearly restrict only individuals’ managerial or ownership interests in a competing business, or true independent-contractor relationships. Moreover, there may be circumstances in which a narrowly tailored non-compete agreement’s infringement on employee rights may be justified by special circumstances, she wrote. “A desire to avoid competition from a former employee is not a legitimate business interest that could support a special circumstances defense.”
The NLRB General Counsel, appointed by the President to a 4-year term, is independent from the Board and is responsible for the investigation and prosecution of unfair labor practice cases and for the general supervision of the NLRB field offices in the processing of cases. Her position memoranda typically are consistent with the views of the Board majority, but may be challenged in court.
Another Biden Administration agency, the Federal Trade Commission (FTC), and the U.S. Department of Justice’s Antitrust Division also contend that there are anticompetitive effects in non-compete agreements.
In January, the FTC published a proposed new rule that would ban private sector employers from imposing noncompetes on their workers, By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans. The FTC is seeking public comment on the proposed rule, which is based on a preliminary finding that noncompetes constitute an unfair method of competition and therefore violate Section 5 of the Federal Trade Commission Act.
The FTC is currently run by three Democrat commissioners appointed by President Biden. Both Republican seats are vacant.
Non-competition agreements are generally lawful in Florida as long as they comply with certain statutory restrictions, including the scope, geographical extension, and duration of the agreement.
The NLRB is an independent federal agency based in Washington, D.C. with primary jurisdiction over relations, wages, and working conditions of employees, employers, and labor unions in the private sector. The Board has five Members and primarily acts as a quasi-judicial body in deciding cases on the basis of formal records in administrative proceedings. Board Members are appointed by the President to 5-year terms, with Senate consent, the term of one Member expiring each year. At present a Republican seat on the Board is vacant, and the four Board members in office are comprised of three Democrats and one Republican.
Congress enacted the NLRA in 1935 to establish a federal policy that encourages collective bargaining by protecting workers’ full freedom of association. The NLRA provides employees at private-sector workplaces the right to seek better wages and other working conditions and designation of representation, including joining a union, without fear of retaliation.
The entire memorandum may be accessed free on line at:
https://www.nlrb.gov/news-outreach/news-story/nlrb-general-counsel-issues-memo-on-non-competes-violating-the-national
