NLRB Further Intensifies Scrutiny of Restrictive Covenants in Employment Agreements

June 1, 2023

In what appears to be the next front in the NLRB’s ongoing campaign against restrictive covenants of all descriptions, General Counsel Jennifer Abruzzo issued a memo on May 30, 2023, proclaiming her view that noncompete provisions in employment agreements and severance agreements violate the National Labor Relations Act in all but limited circumstances. According to GC Abruzzo, “a provision in an employment agreement . . . reasonably tends to chill employees in the exercise of [their rights to collective bargaining] unless it is narrowly tailored to address special circumstances justifying the infringement on employee rights.”

The memo closely follows the March 2023 decision in McLaren Macomb, where the NLRB found that severance agreements violated national labor law when they tended to chill a separated employee’s ability to participate in NLRB proceedings or discuss the terms of their severance with former coworkers and colleagues.

In the memo, GC Abruzzo identifies five specific types of protected activity likely to be chilled by noncompete provisions:

  1. Employees threatening to resign en masse to demand better working conditions;
  2. Employees resigning en masse to secure better working conditions (a right current Board precedent does not explicitly afford employees);
  3. Collectively seeking or accepting employment with a local competitor to obtain better working conditions;
  4. Soliciting former coworkers to work for their new employer, which GC Abruzzo imagines as a form of concerted organizing activity; and
  5. Resigning from a current job specifically to seek employment with a competitor with the intention of organizing the competitor’s workplace.

After highlighting these unusual circumstances, GC Abruzzo concludes her memo on a more moderate note, recognizing that restrictions on ownership of competing businesses and true independent-contractor relationships (another longstanding employer prerogative the NLRB has recently sought to erode) may not categorically violate the NLRA.

Of particular note, GC Abruzzo’s memo repeatedly mentions the impact noncompete provisions may theoretically have on low-wage workers.

GC Abruzzo concludes by encouraging Regions to flag cases involving noncompete provisions, including evaluation of make-whole remedies for employees who can demonstrate – likely through self-serving testimony alone – foregoing alternative employment when subject to a noncompete provision.

While the GC’s memo does not constitute a change in the law or create binding precedent, it does signal to the Regions that noncompete provisions should be given significantly enhanced scrutiny. The memo also solicits decisions from the Regions finding noncompete provisions in violation of the NLRA.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.