Important Updates on Non-Compete Employment Agreements
Employers following the Federal Trade Commission’s (“FTC”) rulemaking process that will restrict non-compete agreements in many employment relationships may be relieved to learn that the FTC is not expected to vote on its proposed rule to ban such agreements until April 2024, according to Bloomberg Law, following receipt of over 27,000 comments from the public.
However, employers should consider taking immediate action to reexamine their use of any non-compete agreements with employees and former employees following the May 30, 2023, National Labor Relations Board (NLRB) announcement that non-compete agreements violate the National Labor Relations Act (NLRA).
NLRB General Counsel Jennifer Abruzzo opined that most employment non-compete agreements violate the NLRA, impacting both unionized and non-unionized workers. The memo argues that non-competes hinder employees from exercising their rights under Section 7 of the NLRA, which protects their ability to engage in concerted activities to improve working conditions. This position has significant implications for both unionized and nonunionized employers, potentially leading to unfair labor practice charges for employers that utilize non-competes as a condition of employment, continuing employment, or severance payments.
Ms. Abruzzo highlights several ways in which she asserts non-compete agreements interfere with employees' rights, including restricting their ability to threaten to resign, seek employment with competitors, and encourage co-workers to work for a competitor as part of engaging in protected concerted activities. The memo notes that non-competes restricting managerial or ownership interests are not subject to the NLRA and begrudgingly recognizes that employers may protect trade secret information but suggests that such goals can be accomplished through narrowly tailored agreements that do not restrict employee mobility.
The memo is directed to the NLRB’s Regional Directors, Officers-in-Charge, and Resident Officers but does not constitute a final ruling. The memo instructs regional offices to submit cases involving non-competes to the Division of Advice, which will evaluate whether complaints should be issued. For the memo's legal position to become law, an NLRB decision or an administrative rule in line with the General Counsel's position must be published.
Nevertheless, employers across the United States, whether they have a unionized workforce or not, should be aware that the usage of non-compete agreements may face the prospect of unfair labor practice charges and subsequent complaints from the NLRB's regional offices. Additionally, General Counsel to the NLRB is staking out the position that individuals who allege discrimination in NLRB cases due to non-compete provisions should be compensated for lost work opportunities.
The NLRB's announcement regarding non-compete agreements and the FTC's delay on non-compete rulemaking have significant implications for employers that rely on non-competes to protect their trade-secrets and other confidential information. While the FTC's timetable gives employers much-needed time to assess their current agreements and practices, the NLRB's position signals a stricter stance against non-competes, leading to increased litigation and scrutiny.
Contact Dan M. Forman or your favorite CDF Labor Law attorney to review your current agreements with your employees to evaluate what, if any, revisions may be warranted due to the NLRB’s announcement and the FTC’s expected rulemaking in 2024 to best protect your trade secrets and confidential information.